Drawdown Types Explained: Trailing vs. Static
Dr. Algo
Prop Mindset & Discipline Expert
Technical breakdown of trailing and static drawdown models used by prop firms, with real examples showing how each type affects funded trader risk limits.
Drawdown Types Explained: Trailing vs. Static
The type of drawdown model a prop firm uses is arguably the single most important structural decision in your funded account's life expectancy. At Ask Propfirm, we document every firm's drawdown model in our forex and futures directories. Two traders with identical strategies can have dramatically different survival rates depending on whether they face a trailing drawdown or a static drawdown. This guide breaks down both systems with precise mathematical examples.
The Two Core Drawdown Models
Static (Fixed) Drawdown
A static drawdown is calculated from the starting balance only. The maximum loss threshold is set at the beginning of the challenge or funded account and never moves, regardless of how much profit you accumulate.
Formula:
Breach Level = Starting Balance − Maximum Drawdown Allowance
Example on a $100,000 account with 10% max drawdown:
- Starting balance: $100,000
- Breach level: $90,000
- After making $8,000 profit (balance = $108,000): Breach level is still $90,000
- The trader has effectively "banked" profit above the static floor
Trailing Drawdown
A trailing drawdown follows the highest point the account ever reaches (either equity peak or balance peak depending on the firm). As profits increase, the floor rises with them.
Formula:
Breach Level = Highest Point Reached − Maximum Drawdown Allowance
Example on a $100,000 account with $10,000 trailing drawdown:
- Starting balance: $100,000 → Breach level: $90,000
- Account peaks at $108,000 → Breach level: $98,000
- Account peaks at $115,000 → Breach level: $105,000
- The trader cannot now fall below $105,000 — even though they started at $100,000
Side-by-Side Numerical Comparison
Consider Trader A on a static model and Trader B on a trailing model, both starting at $100,000 with a $10,000 drawdown allowance:
| Event | Trader A (Static) | Breach at | Trader B (Trailing) | Breach at |
|---|---|---|---|---|
| Start | $100,000 | $90,000 | $100,000 | $90,000 |
| Peak to $112,000 | $112,000 | $90,000 | $112,000 | $102,000 |
| Drop to $103,000 | $103,000 | Safe | $103,000 | BREACH |
Trader A is safe. Trader B is eliminated — despite having $3,000 in net profit.
This is the critical danger of trailing drawdown: it eliminates you even while you are in profit.
Equity Trailing vs. Balance Trailing
The trailing drawdown model has a crucial sub-distinction that many traders overlook:
Equity-Based Trailing
The drawdown follows the live equity peak, including open trades. If you have an open position floating at +$3,000, the floor has already moved $3,000 higher — even though the trade is not closed.
Balance-Based Trailing
The drawdown only moves when a trade is closed and profit is booked. Open trade equity does not shift the floor.
Why this matters:
| Scenario | Equity Trailing Result | Balance Trailing Result |
|---|---|---|
| Open trade floats to +$5K then returns to 0 | Drawdown floor rose then you likely breached | Drawdown floor unchanged — safe |
| Trade hits +$3K and you close it | Floor rises after close | Floor rises after close |
Equity-based trailing is significantly more punishing. Apex Trader Funding (apextraderfunding.com) and Topstep's Combine use balance-based trailing, which is more forgiving for swing traders with open positions.
Which Firms Use Which Model?
| Firm | Drawdown Type | Notes |
|---|---|---|
| FTMO | Static | Standard challenge; some newer models vary |
| MyFundedFX | Static | All standard challenge models |
| The Funded Trader | Static | Standard and Royal challenge |
| Apex Trader Funding | Balance trailing | Industry standard for futures |
| Topstep | Balance trailing | Combine and Funded Account |
| Bulenox | Balance trailing | Futures-focused |
| SurgeTrader | Static | Audition model |
| True Forex Funds | Static | Phase 1 and 2 |
Impact on Strategy Selection
The drawdown model should directly influence which strategies you deploy:
Strategies Better Suited to Static Drawdown
- Swing trading with wide stops
- Grid or hedging approaches (where allowed)
- High-frequency scalping (profits bank quickly above the fixed floor)
- News trading (volatile, but floor does not move with each trade)
Strategies Better Suited to Trailing Drawdown (Balance-Based)
- Trend-following with tight trailing stops
- Breakout strategies with quick profit-taking
- Any strategy where you close winning trades promptly and cut losses fast
Strategies That Struggle With Equity-Based Trailing
- Carry trades or swap-seeking positions
- Strategies that let trades float open for extended periods
- Mean reversion with wide drawdown tolerance before recovery
The Locked-In Profit Phenomenon
One advantage of trailing drawdown that is often overlooked: it locks in your achievement over time.
On a balance-trailing model, once you have accumulated $5,000 in profit, the floor has risen to protect you from falling more than $10,000 below your current balance. This means the trailing drawdown functions like a ratcheting stop loss — your downside is bounded even if you have a string of losing trades.
However, this only benefits traders who can consistently add to their balance. A single large losing streak early in a trailing-drawdown account can move the floor to near current equity, eliminating almost all risk capacity.
Key Takeaways
- Static drawdown gives you a fixed floor that never changes — profits accumulate as a buffer above the hard limit
- Trailing drawdown follows your peak — every gain also tightens the noose if things reverse
- Equity trailing is the most punishing form — open trade PnL moves the floor
- Balance trailing only moves when trades close — better for swing traders
- Your strategy selection must match the drawdown model of your chosen firm
- For beginners: static drawdown is significantly more forgiving and should be the first choice
Understanding these mechanics before funding your first challenge is not optional. It is the difference between a strategy that works in testing and one that survives in a real prop account. For static drawdown firms, see our forex prop firms directory. For trailing drawdown futures firms, see our futures directory.