Prop firm drawdown rules: balance-based vs equity, static vs trailing

Every firm defines drawdown a little differently. Here are the four choices to look for, a worked example, and what to write in your journal.

Four choices every firm makes

Prop firms all talk about drawdown, but they do not all mean the same thing. When you read a firm's rules, look for these four choices.

Choice	Options you will see	Why it matters
Balance or equity	Closed-trade balance, or equity including open trades	Floating losses count against equity limits even if the trade recovers
Daily baseline	Start-of-day balance, start-of-day equity, or the higher of the two	Decides where today's floor sits
Static or trailing	A fixed floor from the initial size, or one that rises with your peak	Trailing floors can shrink your buffer as you profit
Reset time	A specific time of day, often in server time	Decides when 'today' starts

A worked example, with made-up numbers

Suppose an account starts at 100,000 with a 5% daily limit measured on the initial size (5,000) and a 10% static maximum loss. At the start of a day the balance is 101,000 and equity is 101,000. The daily floor is 101,000 - 5,000 = 96,000 and the maximum floor is 100,000 x 0.90 = 90,000. At 98,000 equity the buffer to the daily floor is 2,000, and that is the closer limit. Now imagine the same day with a firm that measures from the higher of balance and equity: if equity had been 102,000 at the start of the day, the floor would be 97,000 and the buffer 1,000. Same account, different rule, half the room. The numbers are invented to show the effect.

Firms differ, change, and sometimes disagree with themselves

When we read firms' own pages for this site, we found places where a help article, a blog post and the official rules page described the same program differently. That is a reason to treat your dashboard as the authority and to write the definition in your journal, with the date, when you start an account.

What to write in your journal for each account

Firm and program name, phase, and starting size
Daily limit and how it is measured (baseline and percentage)
Maximum loss and whether it is static or trailing
Reset time and your broker server's time
The date you copied it, and where from

Then use the prop firm drawdown calculator with those inputs, and the prop firm risk calculator to size trades. Drawdown from closed trades is also explained in how to track drawdown in MT5.

Challenge fees are real money and prop trading is risky. This page is general education, not trading or investment advice, and it is not a statement of any firm's rules.

Ten questions to answer from your firm's rules page

Is the daily limit a percentage of the initial account size, or of the day's baseline?
Is the baseline the start-of-day balance, the start-of-day equity, or the higher of the two?
At what time does the day reset, and in which time zone?
Does floating profit and loss count towards the daily limit?
Is the maximum loss static or trailing?
If trailing, is it measured from your highest balance or highest equity, and does it stop trailing at some point?
Does a breach apply the moment equity touches the floor, or only if a daily close is below it?
Are there other conditions, such as a profit target, a minimum number of trading days, or limits on holding trades over news or weekends?
Do the rules differ between phases, programs or account sizes?
Where is the rule written, and is it the same as in the help articles?

Write each answer in your journal with the date and the page you read it from. Ten minutes of reading at the start can save a challenge fee.

A trailing example with made-up numbers

Take a 100,000 account with a 10% trailing maximum loss measured on the highest equity, and no stop to the trailing. On day one the floor is 90,000. After a good week the highest equity reaches 106,000, so the floor moves to 95,400. A pullback to 99,000 leaves a buffer of 3,600, even though the account is only 1,000 below where it started. On a static 10% limit the floor would stay at 90,000 and the same pullback would leave 9,000 of room. The same account, the same trades, and 5,400 less room, simply because of the definition.

Equity	Static floor 90,000: buffer	Trailing floor 95,400: buffer
106,000 (peak)	16,000	10,600
102,000	12,000	6,600
99,000	9,000	3,600
96,000	6,000	600

Why floating losses matter

Suppose your balance is 101,000 and you open a large position that moves 3,000 against you before recovering to close at break-even. If the firm measures the daily limit on equity, your equity passed through 98,000 during the trade, and a floor at 97,000 would have been close. If it measures balance only, the trade never counted. Neither is universal. The practical rule is to check how your dashboard shows your daily drawdown during an open trade, and to size so that a normal adverse move cannot reach the floor.

Other rules that sit beside drawdown

Drawdown limits are only part of a firm's rules. Programs often add a profit target, a minimum number of trading days, consistency requirements or restrictions around news and weekends. These vary by firm and program, and they change. A journal helps with these too, because it records the number of days traded, the largest single day and the trades open at scheduled events. We do not list any firm's rules here because they change, so read yours directly.

A rules entry for your journal

Field	Example (made-up)
Firm and program	Example firm, two-phase challenge
Account size and phase	100,000, Phase 1
Daily limit	5% of the initial size, baseline start-of-day balance
Maximum loss	10%, static
Reset	00:00 server time, which is 02:00 my time
Other conditions	Profit target and minimum days: see dashboard
Copied on	8 October 2026, from the dashboard rules tab

Then plug the figures into the prop firm drawdown calculator and log each day in the challenge tracker.

For the platform numbers behind these rules, see MT5 balance vs equity.

Drawdown is only one of the conditions firms set. For the rule about how profit is spread across days, see the prop firm consistency rule explained.

Frequently asked questions

What is the difference between static and trailing drawdown?

Static drawdown fixes the floor from the initial account size. Trailing drawdown moves the floor up as your highest balance or equity rises, within the firm's rules.

Is daily drawdown based on balance or equity?

It depends on the firm and sometimes on the program. Some use start-of-day balance, some equity, some the higher of the two. Check your own rules.

Why do prop firm drawdown rules look different on different pages?

Firms offer several programs and change rules over time, and their pages are not always updated together. Use your dashboard as the authority.

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