Drawdown is the single line that ends most prop-firm accounts. Not bad trades — drawdown. People blow accounts they were never really “losing” on, because they misread how the floor under them was calculated. In my experience, if you understand exactly how your drawdown moves, you avoid the large majority of avoidable breaches.
This is the complete reference. We’ll decode every common variant, rank them by how punishing they are, separate the two different limits that can each end your account, and walk a worked example where you’re green on the day and still get cut.
The two limits that can kill an account
Almost every firm runs two separate lines, and you breach the account if you touch either one:
- Max (overall) drawdown — the total loss-from-peak you’re allowed across the life of the account. This is the “how far down can I ever go” line.
- Daily loss limit — a separate, usually stricter line that resets each session. It caps how much you can lose within a single day, regardless of how healthy your overall drawdown looks.
Watch out — these are independent. You can be miles clear of your max drawdown and still get cut for breaching the daily limit before lunch. Treat them as two different fences.
The max-drawdown variants
The “max drawdown” label hides three completely different mechanics. The difference between them is the difference between a forgiving account and a trap.
Static (fixed floor). A hard line set once and never moves. On a $50,000 account with a $2,000 max drawdown, your floor sits at $48,000 — forever. Bank $5,000 in profit and the floor still sits at $48,000. You now have $7,000 of room. Static rewards you for being up.
End-of-day (EOD) trailing. The floor trails your balance upward, but it only recalculates off your closed balance at the end of the session. Intraday spikes don’t move it. So if you close a day at $52,000, your floor ratchets up by that gain (typically once it’s settled), but a $53,500 unrealized peak you gave back before the close does not count against you.
Intraday trailing. The floor follows your live equity, tick by tick, including unrealized profit. Every new high-water mark in open P&L drags the floor up with it — and the floor does not come back down when the trade does. This is the most punishing variant, and it’s the one that catches people who think they’re playing it safe.
Where trailing locks
Most trailing drawdowns stop trailing at some point — they lock. Common lock points:
- Locks at starting balance. Once your trailing floor climbs to your original starting balance (e.g. the floor reaches $50,000 on a $50,000 account), it freezes there and stops trailing. From then on it behaves like a static floor at break-even.
- Locks at starting balance + buffer. Same idea, but it freezes a set amount above start (e.g. $50,000 + $100). You give a little more before the lock engages, but once locked you can’t lose the account by dipping below that fixed line.
Why this matters — until the lock engages, every dollar of new peak tightens your noose. After it locks, your downside risk is fixed and far easier to manage. Knowing your lock point tells you exactly when the account stops being fragile.
Ranked: most forgiving to most punishing
| Variant | How it moves | How forgiving | The trap |
|---|---|---|---|
| Static | Never moves | Most forgiving | None really — profit only adds room |
| EOD trailing (locked) | Trails off closed EOD balance, then frozen at lock point | Forgiving | Forgetting it trailed up before it locked |
| EOD trailing (unlocked) | Trails off closed EOD balance each session | Moderate | Banking a big closed day raises the floor permanently |
| Intraday trailing (locked) | Follows live equity until lock, then frozen | Punishing until lock | Hitting an unrealized peak before the lock engages |
| Intraday trailing (unlocked) | Follows live equity, tick by tick, forever | Most punishing | Floor chases unrealized peaks you never banked |
Worked example: green on the account, still breached
This is the one to internalize. Account: $50,000, intraday trailing, $2,000 max drawdown, not yet locked.
- You start the day at $50,000. Floor sits at $48,000.
- A trade runs deep in your favor. Open equity peaks at $51,500 — but you don’t close. Because it’s intraday trailing, your floor ratchets up by the $1,500 gain to $49,500.
- The market reverses. You give back the open profit and your trade closes at break-even. Balance: $50,000. You feel fine — you didn’t lose anything.
- You take a second trade. It goes against you by $600. Equity dips to $49,400.
- Your floor is $49,500. You’ve breached it. Account closed — while still up $0 net and showing a positive overall balance.
The lesson — under intraday trailing, an unrealized peak you never bank still permanently tightens your floor. The drawdown chased a profit that existed for thirty seconds. Static or EOD trailing would have left that floor untouched, and this account survives.
Now run the same sequence under static: floor stays at $48,000 the whole time. The $600 loss leaves you at $49,400 — comfortably clear. Same trading, completely different outcome. The mechanic, not the trades, decided it.
The daily limit, worked
Daily limits usually anchor to either your start-of-day balance or your intraday high — read which. On a $50,000 account with a $1,000 daily loss limit anchored to start-of-day balance, your daily floor is $49,000 for the session. Lose $1,000 from the open and you’re done for the day even if your max drawdown still shows thousands of room. If the daily limit anchors to your intraday equity high instead, it behaves like a mini intraday-trailing rule layered on top — far easier to trip.
Pre-trade checklist — ask any firm before you fund
- Is the max drawdown static, EOD trailing, or intraday trailing?
- If trailing: does it follow closed balance or live equity including unrealized?
- Does the trailing floor lock? At what point — starting balance, start + a buffer, or never?
- Is there a separate daily loss limit, and what’s the number?
- Does the daily limit anchor to start-of-day balance or to your intraday high?
- When exactly does the drawdown update — real-time, at session close, or after settlement?
- Is the breach hard (instant close) or a soft warning, and is there any cushion?
- Do commissions and fees count toward the drawdown calculation?
Get those eight answers in writing and you’ve removed the guesswork. Most account deaths aren’t bad trading — they’re a trader who never asked question three.