Education · Risk Management
Drawdown explained: how to protect your capital and your account.
Drawdown is the only number that really matters in prop trading. It is the distance between your peak account value and its current low. Understanding how it is calculated is the difference between keeping a funded account and losing it.
Static vs. Trailing drawdown.
Static drawdown stays at a fixed dollar amount. If you start with $50,000 and have a 6% static limit, your 'death line' is $47,000. It never moves, even if your account grows to $60,000.
Trailing drawdown is more aggressive. It follows your equity upward. If you grow to $55,000, your 6% limit might move up to $51,700. This makes it harder to keep an account during a winning streak that pulls back. MixFunded focuses on clear, transparent limits to help traders stay in the game.
The 3% daily drawdown rule.
- Calculated at 00:00 UTC every day based on the higher of balance or equity.
- It is a hard stop: if your equity drops 3% below that starting mark, the account is breached.
- It resets every day, allowing you to recover slowly if you stay above the overall limit.
Managing the 'Buffer'.
The best way to trade a prop account is to build a 'buffer' of profit. If you are up 2%, your effective drawdown increases because you are playing with 'house money' before hitting your initial capital limit.
Until you have that buffer, you should trade smaller. Risking 0.25% or 0.5% per trade gives you 6 to 12 'bullets' before you risk hitting a daily 3% limit.
Why prop firms use drawdown limits.
Drawdown limits are a risk management tool. They ensure that a trader has a disciplined exit strategy and doesn't gamble away the firm's capital. By respecting these limits, you prove you are a professional manager of risk, not just a lucky gambler.
With no time limits at MixFunded, there is no pressure to take large risks. You can wait for the perfect setup that offers a high reward-to-risk ratio, keeping your drawdown shallow.