Definition of Drawdown
The peak-to-trough decline in an account's equity during a specific period. It measures the largest loss from a high point to a subsequent low point before a new high is reached. Expressed as a percentage.
At a glance
Term
Drawdown
URL slug
drawdown
Category
Risk & capital
Short answer
The peak-to-trough decline in an account's equity during a specific period.
Deep dives
Full A–Z glossary
Example
Example: $1,000 equity and 1% risk = a $10 cash cap. Size from “Drawdown” and stop distance, not from a gut-feel lot size.
Common mistake
Common mistake: confusing “Drawdown” with advertised max leverage — leverage alone does not set risk per trade.
Professional tip
Tip: write a cash daily loss limit independent of “Drawdown”, then let the definition set size only inside that ceiling.
Practice tools:
Related terms
FAQ
The peak-to-trough decline in an account's equity during a specific period.
“Drawdown” sits inside capital protection. Ignoring it turns leverage and margin from tools into a path to rapid loss.
Common mistake: confusing “Drawdown” with advertised max leverage — leverage alone does not set risk per trade.