Types of drawdown in prop trading
Maximum drawdown is the most an account can lose before it's disqualified. How a firm measures that loss, against your starting balance or against your highest point reached, changes how much room you actually have to trade, even when the percentage looks the same on paper.
In short:
- Static drawdown is measured against your starting balance and stays fixed.
- Trailing drawdown is measured against your highest balance reached, and moves as you profit.
- The two can produce very different amounts of usable room even at the same percentage.
- A trailing floor can lock permanently once it climbs to the account's starting balance, a feature some firms build in and others don't.
- Daily loss limits are a separate mechanic from overall drawdown, not the same rule twice.
What is drawdown in prop trading?
Drawdown is the decline from an account's peak or starting value down to its current value. A maximum drawdown limit sets how far that decline can go before the account is disqualified, expressed as a percentage or a fixed dollar amount of the account size.
Static drawdown explained
A static drawdown limit is calculated against the account's original starting balance and doesn't move for the life of the account. A $100,000 account with a 6% static drawdown has a floor at $94,000, whether the balance is at $100,000 or has grown to $130,000. The floor doesn't rise as you profit, so profit built up on the account adds a buffer above the floor rather than moving the floor itself. FTMO's 2-Step Challenge and Breakout's 1-Step accounts both work this way: FTMO fixes the floor 10% below the starting balance, Breakout fixes it 3-6% below depending on account size, and neither floor moves once it's set.
Trailing drawdown explained
A trailing drawdown limit is calculated against the account's highest balance reached, not its starting balance. If a $100,000 account grows to $110,000 under a 6% trailing rule, the floor moves up to $103,400, tracking the new high rather than staying at the original $94,000. This means profit doesn't build a growing buffer the way it does under a static rule; the floor follows you upward and can catch a pullback from a recent high even if the account is still well above its starting balance. FTMO's 1-Step Challenge and Breakout's 2-Step accounts both use a trailing floor, recalculated at the end of each trading day rather than intraday. Topstep's futures accounts add a further twist: the trailing floor locks permanently once it climbs up to the account's original starting balance, at which point the account behaves like a static-floor account for the rest of its life.
How drawdown types compare across firms
The same firm can use both models depending on the product. FTMO and Breakout each pair a static floor with their single-phase account and a trailing floor with their multi-step account; Topstep's futures accounts trail, then lock; xato uses a single static floor across the board. Rules and percentages like these change without much notice, so the table is a snapshot rather than a permanent reference.
| Firm | Account type | Drawdown type | How it moves |
|---|---|---|---|
| FTMO | 2-Step Challenge | Static, 10% | Fixed from the starting balance, doesn't move |
| FTMO | 1-Step Challenge | Trailing, 10% | Recalculated at the end of each trading day from the highest closing balance, never decreases |
| Breakout | 1-Step | Static, 3-6% | Fixed from the starting balance |
| Breakout | 2-Step | Trailing, 8% | Tracks the highest balance reached |
| Topstep | Trading Combine and Express Funded Account | Trailing (Maximum Loss Limit) | Trails up with the end-of-day balance, locks permanently once it reaches the starting balance |
| xato | Xato Account (funded) | Static, 6% | Fixed from the original account size, doesn't move, including after a payout |
Daily loss limits vs. overall drawdown
A daily loss limit is a separate mechanic from maximum drawdown, not a second version of the same rule. Drawdown tracks the account's overall decline over its lifetime; a daily loss limit caps how much can be lost within a single day, on top of whatever the overall drawdown allows. FTMO's 2-Step Challenge shows the difference clearly: a 5% daily loss limit sits inside the account's 10% overall maximum drawdown, so a trader could use the full daily allowance on one day and still have drawdown room left the next. An account can be well within its overall drawdown and still breach a daily loss limit on a single bad day.
Static vs. trailing drawdown compared
| - | Static drawdown | Trailing drawdown |
|---|---|---|
| Measured against | Original starting balance | Highest balance reached |
| Moves as you profit? | No, stays fixed | Yes, rises with new highs |
| Buffer from profit | Grows as you profit | Doesn't grow the same way |
| Effect of a payout | Floor typically unaffected | Can depend on the firm's specific rule |
How xato does this
On a $100,000 xato account, the 6% static floor works out to a $6,000 maximum drawdown, a $94,000 floor that stays in place for the life of the account, unaffected by balance changes or a payout, because it was never trailing in the first place.
That's a different mechanic from Topstep's Express Funded Account, where the trailing Maximum Loss Limit resets to $0 after every payout, tightening the account's room to lose money each time a trader gets paid. On the daily loss side, a payout debited during the trading day adjusts that day's loss floor by the same amount, so the payout itself doesn't register as a trading loss; the next day's reset then uses the account's actual post-payout balance.
Frequently asked questions
Neither is universally better. A static floor gives a growing buffer as you profit; a trailing floor can be tighter after a strong run since it tracks your peak balance rather than your starting one.