Risk & Drawdown
What is a trailing drawdown in a futures prop firm?
A trailing drawdown is a loss limit whose floor moves up as your account makes new highs. The floor is the balance at which the account fails, and it trails your best balance by a fixed amount. It never moves back down, so every new high leaves you less room if the account gives some of it back.
That is the whole rule. The details that catch traders are which balance the floor follows, when it moves, and whether it ever stops.
Floor and room
Two numbers matter more than the headline drawdown figure.
- Floor: the balance at which the account fails.
- Room: your balance minus the floor. This is how much you can lose from here before the account fails.
On day one, room equals the full drawdown. A $50,000 account with a $2,000 drawdown starts with a floor of $48,000 and room of $2,000. After that, the two numbers separate. The headline says $2,000. Your room is whatever the arithmetic says today.
Three types of drawdown
Prop firms use three common designs. They are often sold at similar prices. They are not similar tests.
Static. The floor is set once, at starting balance minus drawdown, and never moves. Floor = $50,000 − $2,000 = $48,000, today and every day.
End-of-day trailing. The floor moves once a day, after the close, to your highest closing balance minus the drawdown. What happens during the session does not move it. Only where you finish counts.
Intraday trailing. The floor follows your highest balance in real time, including unrealised profit on open trades. If the account is at its high and a trade is then up $800 at its best moment, the floor rises by $800, whether or not you ever close the trade there.
The formulas, side by side:
| Type | Floor |
|---|---|
| Static | starting balance − drawdown |
| End-of-day trailing | highest closing balance − drawdown |
| Intraday trailing | highest balance including open trades − drawdown |
The lock level
Some firms stop trailing the floor once it reaches a set level, often the starting balance. This is usually called the lock. Once the floor locks, it behaves like a static floor from then on.
On a $50,000 account with a $2,000 drawdown and a lock at $50,000, the floor stops rising once your peak reaches $52,000. Floor = $52,000 − $2,000 = $50,000. A later peak of $53,000 does not move it. Your room grows again as the balance rises above the lock.
Not every plan has a lock, and the level differs between firms. Find it in the rulebook before you plan a trade around it.
A worked example
(example figures, not results)
A $50,000 account with a $2,000 intraday trailing drawdown and a lock at the starting balance.
| What happened | Balance | Peak | Floor | Room |
|---|---|---|---|---|
| Start | $50,000 |
$50,000 |
$48,000 |
$2,000 |
| Open trade reaches its best point | $51,200 |
$51,200 |
$49,200 |
$2,000 |
| Trade closes lower | $50,700 |
$51,200 |
$49,200 |
$1,500 |
The arithmetic:
- Floor =
$51,200 − $2,000 = $49,200 - Room =
$50,700 − $49,200 = $1,500
The account is up $700 on the day. It has $500 less room than it started with. The lock has not come into play, because the floor of $49,200 is still below $50,000.
Now run the same day under the other two types.
- End-of-day trailing. The highest close is
$50,700. Floor =$50,700 − $2,000 = $48,700. Room =$50,700 − $48,700 = $2,000. The intraday peak of$51,200never counted. - Static. Floor =
$48,000. Room =$50,700 − $48,000 = $2,700.
Same trades, same balance. Room of $1,500, $2,000 or $2,700 depending on the rule. That $1,200 gap between the tightest and loosest version is the difference between products.
Why the floor sneaks up
On an intraday trailing drawdown, the floor follows your best moment, not your result. A trade that runs in your favour and comes back raises the floor on the way up. When the trade closes lower, the floor stays at the high-water mark.
In the example, the trader never took a loss. The trade closed green. Still, $500 of room disappeared, because the floor followed an open profit that was never banked.
This has three practical effects.
- You have the least room when you feel best. Every dollar of open profit tightens the floor. The account is most fragile right after a strong run that faded.
- Giving back open profit costs room twice. You lose the profit and you keep the higher floor.
- Your stop and your floor can be closer than you think. A stop placed for a full
$2,000of room may sit below the real floor once a peak has moved it.
End-of-day trailing removes the intraday version of this, because only closes count. It does not remove it across days. A strong close still raises tomorrow's floor.
How to turn room into ticks
Room in dollars is more useful once it is in ticks. CME tick values per contract, from CME Group contract specifications: MNQ $0.50 a tick ($2 a point), MES $1.25, NQ $5.00, ES $12.50.
With $1,500 of room on one MNQ contract:
$1,500 ÷ $0.50 = 3,000ticks of room- A
40-tick stop costs40 × $0.50 = $20 - Stops you can take before the floor =
$1,500 ÷ $20 = 75
On one NQ contract the same 40-tick stop costs 40 × $5.00 = $200, and $1,500 ÷ $200 = 7.5, so 7 full stops. Same room, one tenth of the margin for error. Size is the other half of this question, and it gets its own post.
How to check your own floor
Do this before the open, every day the account is active.
- Find the drawdown type, the drawdown amount and the lock level in the firm's current rulebook.
- Find your peak. For intraday trailing, that is the highest balance including open trades. For end-of-day, the highest close.
- Floor = peak − drawdown, capped at the lock if there is one. For static, starting balance − drawdown.
- Room = current balance − floor.
- Write both numbers down where you can see them while you trade.
If the platform shows a "drawdown remaining" figure, check it against your own arithmetic. If they differ, find out why before you place a trade.
Common mistakes
- Reading room from the headline. A
$2,000drawdown is$2,000of room on day one only. After any new peak, recompute. - Ignoring open profit on an intraday trailing account. The floor moves on unrealised highs. A trade you closed at a small gain can still have cost you room.
- Assuming the lock exists. Some plans lock the floor, some do not, and the level varies. Do not plan around a lock you have not read in the rules.
- Using yesterday's floor. Every new peak, intraday or at the close, changes the number. A floor written down last week is a guess.
- Treating the three types as the same product. On identical trades they can leave very different room, as the example shows. Compare evaluations by the rule, not the account size.
Questions
Does a trailing drawdown ever move down?
No. A trailing floor only moves up, following your highest balance. If the account falls back, the floor stays where it was and your room shrinks.
What is the difference between intraday and end-of-day trailing?
An intraday trailing floor follows your highest balance in real time, open trades included. An end-of-day trailing floor moves once a day, to your highest closing balance, so open profit during the session does not raise it.
What is a lock level?
Some firms stop trailing the floor once it reaches a set level, often the starting balance. After that the floor stays fixed, like a static drawdown.
How do I know which type my account uses?
Read the firm's current rulebook for three answers. Which drawdown type it is, whether it trails unrealised or closed P&L, and where it stops trailing. If the rulebook does not say, ask before you buy.
Educational material only. Not financial, investment or trading advice, and not a recommendation to trade any contract or size. Prop firm rules differ and change; the current rulebook of the firm you use decides. Worked examples use example figures, not results. Futures trading involves substantial risk of loss. Evaluations are paid tests and most people who take one do not pass.