What Is Drawdown in Trading?

Drawdown is the decline in an account's value from a peak to a subsequent low, usually shown as a percentage. Maximum drawdown is the largest such decline over a period.

Formula

Drawdown = (Peak − Low) ÷ Peak × 100

Example

An account grows to $12,000 and then falls to $10,200. The drawdown is $1,800, or 15%.

Why drawdown matters

Losses are harder to recover than they look: a 20% drawdown needs a 25% gain to recover, and a 50% drawdown needs 100%. Prop firms also set drawdown limits that end the account if breached.

See the drawdown recovery calculator and risk of ruin calculator. Related: trailing drawdown, daily loss limit. See the trading glossary.