What is a trailing drawdown?
A trailing drawdown is a risk rule where the maximum loss limit moves up as your account equity increases.
Example:
Account size: $100,000
Trailing drawdown: 3% ($3,000)
Initial limits:
Starting balance: $100,000
Maximum loss allowed: $3,000
Breach level: $97,000
If your account grows, the trailing drawdown moves up as well.
Example:
Highest equity: $103,000
Maximum drawdown: $3,000
New breach level: $100,000
This means if your account reaches $103,000, it cannot fall below $100,000 without breaching.
What happens when I request a payout?
When a payout is requested, the trailing drawdown stops moving and remains at the last level reached.
Your account balance must remain above the maximum drawdown limit after the withdrawal.
Why can withdrawing too much breach the account?
A withdrawal reduces your account balance but does not change the drawdown limit.
Example:
Account balance: $103,000
Drawdown limit: $100,000
Available buffer: $3,000
If you withdraw $2,000:
New balance: $101,000
Remaining buffer: $1,000
If you withdraw $3,000:
New balance: $100,000
Remaining buffer: $0
At this point, any loss would breach the account.
Can I withdraw more than my available buffer?
No.
If your withdrawal reduces the account balance below the drawdown limit, the account will immediately breach.
Example:
Balance: $103,000
Drawdown limit: $100,000
Withdrawal request: $4,000
New balance: $99,000
Since $99,000 is below the allowed drawdown limit of $100,000, the account would be breached.
Why is it recommended to leave a buffer after withdrawing?
Leaving a buffer allows you to continue trading without risking an immediate breach.
Example:
Balance: $107,000
Drawdown limit: $100,000
Withdraw $4,000:
New balance: $103,000
Remaining buffer: $3,000
This means the account can still sustain losses without breaching the drawdown rule.
How do I calculate the maximum safe withdrawal?
Maximum withdrawal = Current balance − Maximum drawdown limit
Example:
Balance: $105,000
Drawdown limit: $100,000
Maximum safe withdrawal: $5,000
Key takeaway
Withdrawals reduce the buffer between your account balance and the drawdown limit. If you withdraw more than the available buffer, the account will breach.