Definition
Drawdown
The decline from an account's reference level (starting balance or equity peak) — the loss budget a prop trader must never exhaust.
Prop firms express risk as two limits: a max (total) drawdown for the account's life and a daily drawdown reset each day. Touch either and the account is breached — evaluation fee gone, funded account closed.
How the reference level is computed (static balance vs a trailing equity peak, balance-based vs equity-based) changes the rule's real size dramatically. It's the single most misunderstood mechanic in the industry.
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Related terms
General industry definitions — individual firms define terms differently in their own ToS; the decoded rulebook for each firm is the source of truth. Educational, not financial advice.