Drawdown Calculation Formula for Prop Firm Challenges

Drawdown Calculation Formula for Prop Firm Challenges

Here is the formula you came for, stated plainly. Max Drawdown Amount = Starting Balance x Drawdown Percentage, and your Floor = Starting Balance minus that amount. On a $100,000 account with a 10% maximum drawdown, that is $100,000 x 0.10 = $10,000, so your floor is $90,000. The moment your balance or equity touches $90,000, you are breached. The daily version works the same way off the day's starting figure: Daily Floor = Day-Start Balance minus (Day-Start Balance x Daily Drawdown Percentage).

Everything past this point is detail: which balance the firm measures, when the clock resets, and whether the floor sits still or follows you up. Get those three right and you will never get breached by accident. Below are worked dollar examples across $10k to $200k accounts, both static and trailing math, and how to convert the floor into a real lot size.

The Core Drawdown Formula

Two numbers define every prop challenge: the drawdown amount and the floor. The amount is what you are allowed to lose. The floor is the hard line your account cannot fall below.

Drawdown Amount = Starting Balance x Drawdown %

Floor = Starting Balance minus Drawdown Amount

Across the industry, maximum drawdown usually sits between 8% and 12%, and daily drawdown between 4% and 5%. Those ranges are illustrative for general education, not a quote of any single firm. Always read the exact percentage on your own challenge before you size a single trade. The arithmetic never changes; only the percentage and the rules about which balance it watches do.

Daily Drawdown vs Maximum Drawdown

These are two separate limits, and you can breach either one independently. The maximum (overall) drawdown is a single floor that protects the whole account for the life of the challenge. The daily drawdown is a temporary floor that resets every trading day.

Say you have a $50,000 account with a 5% daily limit and a 10% maximum limit. Your maximum floor is $45,000 and stays relevant the entire challenge. Your daily floor is the day's opening figure minus $2,500. If you start a day at $52,000, the daily floor that session is $49,500. You could be nowhere near the $45,000 maximum floor and still fail the challenge by dropping below $49,500 in a single day. Most blown evaluations die on the daily limit, not the maximum, because traders treat one bad session as recoverable when the rule already closed the account.

Static Drawdown Calculation

Static (fixed) drawdown is the trader-friendly version. The floor is set once from your original starting balance and never moves, no matter how much profit you make. TradersYard offers a static drawdown option that does not trail up, which removes the most common way good traders sabotage themselves.

Worked example on a $100,000 static account with a 10% maximum: floor is $90,000, locked. You grow the account to $108,000. The floor is still $90,000. You now have $18,000 of room instead of the original $10,000, because every dollar of simulated profit widens your room to trade. Static drawdown rewards the trader who builds a cushion early.

Trailing (EoD Max) Drawdown Calculation

Trailing drawdown is where most accidental breaches happen. The floor follows your highest balance or equity upward. The formula is:

Trailing Floor = Highest Balance (or Equity) reached minus Drawdown Amount

On a $100,000 account with a $10,000 trailing drawdown, the floor starts at $90,000. Push the account to a new high of $105,000 and the floor ratchets up to $95,000. Climb to $110,000 and the floor is now $100,000, your original starting capital. The trap is obvious once you see it: if you make $10,000 in profit and then give back $10,500, you are breached even though you are still up overall on the day you started.

TradersYard uses an EoD Max drawdown type that trails up only. End-of-day trailing means the high-water mark for the floor is locked from your end-of-day balance, not from every intraday spike, which gives you more room during the session than a pure intraday trailing model. The floor still moves up only and never down. To understand how this rule fits the wider rulebook, read our funded trading account rules checklist.

Balance vs Equity and Reset Timing

The single most important question is whether your firm measures balance or equity. Balance counts only closed trades. Equity counts your balance plus all open, floating profit and loss. If the rule is equity-based, an open trade that is deep in the red can breach you even if it would have recovered minutes later. That is the difference between a paper loss and a closed account.

TradersYard's daily drawdown is equity-based and resets at UTC 00:00. That means your floating P&L is live in the calculation all session, and at midnight UTC the daily floor recalculates from your new starting figure. The EoD Max trailing type, by contrast, anchors to end-of-day values for its high-water mark but is still enforced in real time during the session. Know your reset time to the minute. Traders who assume their day rolls over at their local midnight, not the server's, miscalculate the daily floor and walk straight into a breach.

Worked Dollar Examples by Account Size

Here is the full math at a glance, using an illustrative 5% daily and 10% maximum so you can apply the pattern to your own percentages.

Replace 5% and 10% with your own challenge's figures and the floors recalculate instantly. For more on how these caps differ across funding sizes, see our breakdown of max lot size for prop firms.

Turning the Formula Into Position Sizing

A floor you cannot translate into a lot size is just trivia. Here is the conversion. First decide how much you risk per trade, usually a fixed dollar figure. Then:

Trades before breach = Daily Drawdown Amount divided by Risk per Trade

On a $100,000 account with a $5,000 daily limit, risking $500 per trade gives you ten losing trades before the daily floor. Tighten risk to $250 and you get twenty. Your lot size then comes from the stop distance: Lot Size = Risk per Trade divided by (Stop Distance in pips x Pip Value). Size every position so that even your worst plausible losing streak in a day keeps you above both the daily and the maximum floor. If a single trade can move you a meaningful fraction toward the floor, the position is too big. For a deeper walkthrough, read our funded account scaling plan strategy.

Common Breach Mistakes

Four mistakes account for most avoidable breaches. One, confusing static with trailing and assuming profit is safe when the floor is chasing you up. Two, forgetting that floating P&L counts under equity-based rules, so an open losing trade breaches you before you ever close it. Three, miscounting the reset time and treating a fresh daily allowance as available hours before UTC midnight actually rolls it over. Four, not tracking your high-water mark on a trailing account, so you never know where the floor actually sits right now.

The fix for all four is the same: write down your exact floor before the session starts, recalculate it after every new high on a trailing account, and watch equity, not just balance, when you have positions open. The math is simple. The discipline of checking it every day is what separates funded traders from people who keep buying resets. For the full picture of how drawdown rules fit into passing a challenge, see our guide on how to pass a prop firm challenge.

FAQ

How is maximum drawdown calculated in a prop firm challenge?+

Multiply your starting balance by the maximum drawdown percentage, then subtract that from the starting balance. On a $100,000 account with a 10% maximum, the amount is $10,000 and the floor is $90,000. If your account is static, that floor never moves. If it is trailing, the floor recalculates from your highest balance or equity reached.

What is the difference between daily drawdown and maximum drawdown?+

Daily drawdown is a temporary floor calculated from each day's opening figure and reset at the server's daily rollover. Maximum drawdown is a single floor that protects the whole account for the life of the challenge. You can breach either one independently, and most failed evaluations breach the daily limit first.

Is prop firm drawdown calculated on balance or equity?+

It depends on the firm and the rule. Balance counts only closed trades. Equity includes open, floating profit and loss, so an unrealized loss on a live position can breach an equity-based limit. TradersYard's daily drawdown is equity-based and resets at UTC 00:00, so always watch your equity, not just your balance, when trades are open.

How does trailing drawdown work and how do you calculate the floor?+

The trailing floor equals your highest balance or equity reached minus the drawdown amount. As you make new highs, the floor ratchets up and never falls back down. On a $100,000 account with a $10,000 trailing limit, hitting $110,000 lifts the floor to $100,000. TradersYard's EoD Max type trails up only and anchors to end-of-day values, giving more intraday room than a pure intraday trail.

What happens when you breach the drawdown limit in a prop firm challenge?+

The account is failed automatically the moment the floor is touched, on balance or equity depending on the rule. There is no warning and no recovery within that account. At TradersYard a failed account earns a 10% discount coupon toward a new challenge rather than a free reset, so sizing positions to stay clear of both floors is the cheaper path.