Trailing Drawdown Explained
Trailing drawdown is the most common — and most misunderstood — risk rule in prop trading. Unlike a static drawdown that stays fixed, trailing drawdown moves up with your equity high-water mark. This means every dollar you make raises the floor beneath you.
How Trailing Drawdown Works
When you start a $50,000 account with a $2,500 trailing drawdown, your minimum equity level (the "drawdown floor") is $47,500. If your account grows to $52,000, the floor rises to $49,500 — always staying $2,500 below your peak. The floor never moves down, only up. Once your account reaches $52,500+, the floor locks at the starting balance ($50,000) and stops trailing.
Real-Time vs End-of-Day Trailing
Real-time trailing drawdown adjusts tick-by-tick as your open P&L changes. If you have an open trade that briefly hits +$1,000, the floor immediately rises by $1,000 — even if the trade closes at breakeven. End-of-day (EOD) trailing only calculates the drawdown based on your balance at market close, ignoring intraday fluctuations. EOD trailing is significantly more forgiving for scalpers and day traders.
Strategies for Managing Trailing Drawdown
The key strategy is awareness: always know exactly where your drawdown floor is. Common approaches include: (1) Taking partial profits early to lock in gains without the floor rising too fast, (2) Using smaller position sizes to limit the gap between open P&L peaks and realized P&L, (3) Avoiding adding to winners too aggressively, since the floor rises with unrealized gains, (4) Monitoring your max favorable excursion (MFE) to understand how much your trades typically run before pulling back.
Common Mistakes
The biggest mistake traders make with trailing drawdown is "running up the floor" — having a great day where the account peaks at a high number, then giving most of it back. Even though you end the day with a modest profit, your drawdown floor has permanently risen. Another common error is not accounting for commission costs, which reduce your actual equity below what you see in your P&L.
Firms Using Trailing Drawdown
| Firm | Max Drawdown | Profit Split | Payout Frequency |
|---|---|---|---|
| Apex Trader Funding | 6% | 100% | Twice monthly |
| BluSky Trading | 4% | 90% | Bi-weekly |
| Bulenox | 4% | 90% | Bi-weekly |
| Earn2Trade | 4% | 80% | Monthly |
| Elite Trader Funding | 4.5% | 80% | Bi-weekly |
| FastTrack Trading | 3.5% | 80% | Bi-weekly |
| Leeloo Trading | 4% | 80% | Monthly |
| My Funded Futures | 4% | 90% | Bi-weekly |
| OneUp Trader | 4% | 90% | Monthly |
| Take Profit Trader | 4% | 80% | Daily (PRO) or bi-weekly |
| TickTick Trader | 4% | 100% | Weekly |
| TopStep | 4% | 90% | Twice monthly |
| Tradeify | 3% | 90% | Weekly |
Frequently Asked Questions
Does trailing drawdown reset?
No. Once the trailing drawdown floor rises, it never comes back down. It only stops trailing once it reaches your initial starting balance (e.g., $50K on a $50K account).
Is trailing drawdown based on balance or equity?
This depends on the firm. Some use real-time equity (including open trades), while others use realized balance at end of day. Always check your specific firm's rules.
Which is harder — trailing or static drawdown?
Trailing drawdown is generally harder to manage because it tightens as you profit. Static drawdown gives you the same buffer regardless of your gains.