How Drawdown Resets Work at Prop Firms: Complete Explanation
Dr. Algo
Prop Mindset & Discipline Expert
A clear explanation of how drawdown resets work at different prop firm types — covering static vs trailing drawdown, when and how resets occur, and the strategic implications for funded traders.
How Drawdown Resets Work at Prop Firms: Complete Explanation
Drawdown mechanics are the most misunderstood aspect of prop firm evaluations. Most traders understand that there's a maximum drawdown limit — but fewer understand when and how that limit resets, how it's calculated intraday vs. daily, and the strategic implications for how you size and manage trades.
Ask Propfirm provides the definitive explanation of drawdown reset mechanics across all major firm types.
The Two Types of Drawdown
Type 1: Static (Relative to Initial Balance)
Definition: The drawdown limit is calculated as a fixed percentage below the initial account balance. It does not move regardless of how profitable you become.
Example: $100K account with 10% static drawdown.
- Initial balance: $100,000
- Maximum drawdown level: $90,000 (always, regardless of profits)
- If account grows to $120,000, the limit is still $90,000
Used by: FTMO (ftmo.com) (both phases), most forex evaluation firms.
Strategic implication: Once you've grown your account above the initial level, your buffer to the limit increases — a $120K account with a $90K limit means you can lose $30K before breach, not just $10K. This rewards profitable traders with progressively more breathing room.
Type 2: Trailing (Locks in at Equity Peak)
Definition: The drawdown level follows your equity upward. As you make money, the floor rises. It never moves down.
Example: $100K account with 5% trailing drawdown.
- Initial balance: $100,000
- Initial trailing limit: $95,000
- Account grows to $105,000: trailing limit rises to $99,750
- Account grows to $110,000: trailing limit rises to $104,500
- The limit locks in as your equity grows
Used by: Apex Trader Funding (evaluation), Topstep (topstep.com) (evaluation).
Strategic implication: The more you make, the higher the floor rises. Eventually, the trailing drawdown can "lock in" near breakeven, making the account risk-free. However, this also means you cannot give back profits freely — a large winning streak followed by a retracement can breach the trailing limit even with the account at a profit.
Intraday vs. Daily Drawdown Calculation
Intraday (Worst-Case Equity)
Most firm drawdown calculations use intraday equity — the lowest equity value at any point during the trading session, not just the closing balance.
Example: You start Monday with $100K. During the session your equity drops to $91,500 (breaching $92,000 maximum drawdown) even though you close the day at $98,000. Your account is still breached — the intraday low triggered the limit.
This catches traders who have volatile sessions that recover — the recovery doesn't undo an intraday breach.
EOD (End of Day) Calculation
A minority of firms calculate drawdown based on end-of-day balance rather than intraday. This is more forgiving for volatile strategies that drawdown significantly during sessions but close profitable.
How to determine which your firm uses: Check their FAQ for "drawdown calculation method" — if not explicit, assume intraday (most conservative interpretation is safest).
The Apex Trailing Drawdown: Special Case
Apex Trader Funding's trailing drawdown has a specific nuance that confuses many traders:
The limit trails your INTRADAY equity peak, not your closing equity peak.
If during a session your account reaches a new intraday high of $103,000 — even if you close that session at $101,000 — the trailing limit has locked in at the new high × (1 - 5%) = $97,850.
This means scalpers who open large winning positions intraday and then give back some profit can lock in progressively higher trailing limits even before closing positions.
When Drawdown Limits Reset in Funded Accounts
A common point of confusion: once you're in a funded account (post-evaluation), do drawdown rules reset?
At most firms:
- Static drawdown funded accounts: The limit is typically set as a percentage of starting funded account balance — it does not reset based on later equity
- Trailing drawdown funded accounts (Apex): The trailing continues from the initial funded account balance — it never resets to a new starting point
Exception — Firms with "Drawdown Resets" or Scaling Plans: Some firms offer explicit drawdown resets as part of scaling programs:
| Firm | Reset Mechanism | Condition |
|---|---|---|
| FTMO | Not automatic; new account required | After breach |
| Apex Trader Funding | No reset; fresh evaluation required | After breach |
| Topstep | Combine reset available | After breach (paid restart) |
| FundedNext | Scaling plan includes drawdown expansion | After reaching profit thresholds |
Strategic Implications by Drawdown Type
| Strategy Type | Preferred Drawdown Model | Why |
|---|---|---|
| Momentum / trend trading | Trailing (Apex) | Build buffer as trades win, locked-in floor |
| Mean reversion | Static (FTMO) | Volatile sessions benefit from non-moving floor |
| Scalping | Static | High-frequency intraday drawdowns prefer stable floor |
| Swing trading | Either | Larger moves compatible with both models |
Dr. Algo's Conclusion
Understanding your firm's exact drawdown mechanic before you trade a single tick is not optional — it's foundational. The difference between static and trailing drawdown can mean the difference between a confident position and an unnecessary breach.
Full drawdown mechanic documentation at our FTMO review, Apex Trader Funding analysis, and Topstep review. All firms compared at [Ask Propfirm(/), forex prop firms, and futures prop firms.