Why Drawdown Is a Funded Trader's Biggest Enemy
At prop firms, drawdown is the line between success and failure. No matter how much you earned last week — a single losing streak beyond the maximum limit closes your account immediately. Understanding how to calculate and monitor drawdown in real time is the most critical skill for any funded trader.
Relative vs. Absolute Drawdown
There are two types of drawdown at prop firms:
- Absolute drawdown: calculated from the initial balance. If you started with $100,000 and the limit is 10%, your equity can never drop below $90,000.
- Relative drawdown: calculated from the equity peak. If you reached $105,000 and the limit is 10%, the floor rises to $94,500. As your peak rises, so does the floor.
FTMO uses relative drawdown. This means the more you profit, the higher the floor you cannot touch. Many traders are caught off guard by this rule.
How to Calculate Your Daily Risk Space
Before opening any trade, calculate:
- What is your current equity?
- What is your drawdown floor today (daily and total)?
- How much can you still lose today without violating the rules?
With those three numbers in hand, define the maximum position size for the day. Never open a trade without this pre-check.
Practical Example
$100,000 account, FTMO. Daily limit: 5% ($5,000). You have already lost $2,000 today. Your remaining space is $3,000. If your average stop is 30 pips on EUR/USD with 1 standard lot ($10/pip = $300 risk), you can open at most 10 positions with that setup — or 1 position with a larger lot. Calculate before entering.
Tools for Monitoring Drawdown
Manual spreadsheets fail because they depend on you updating data after each trade. ForexTracker automatically calculates your daily and maximum drawdown as you log trades, displaying visual alerts when you are approaching the limits. That is the difference between being caught by surprise and having full control.
Drawdown Control Best Practices
- Set a personal limit smaller than the prop firm's (e.g., 3% personal vs. 5% FTMO)
- End the day when you hit your personal limit — no exceptions
- Never increase lot size to "recover" intraday losses
- Review your drawdown after each trade, not only at end of day
Track your drawdown in real time with ForexTracker. Access it free at app.forextracker.com.br.
