Prop Firm Blog – Propvator

Proprietary trading firms (prop firms) offer a unique opportunity: trade with large capital and keep a portion of the profits. But there’s a catch, every firm enforces strict risk rules and the most important of them all is the drawdown rules.

If you don’t understand the difference between static drawdown and trailing drawdown, you might blow a funded account before your real trading even begins.

This guide, powered by Propvator, your go-to platform for prop firm comparisons and education, will break everything down in simple terms so you can trade smarter, not harder.

 

maximum drawdown

 

What does Drawdown mean?

In prop firm trading, drawdown refers to the maximum amount of money you’re allowed to lose from your account balance. If you break the drawdown rule, your challenge or funded account will be terminated, no matter how well you were doing.

 

There are two main types of drawdown:

➙ Static (Fixed) Drawdown

➙ Trailing Drawdown

 

Static Drawdown: The Fixed Safety Net

A static drawdown is calculated from your initial balance and never moves (no matter how much you gain).

 

Example: You start with a $100,000 account and a 5% static drawdown limit. That means you can’t let your balance go below $95,000, Ever. Even if you grow your account balance to $120K, your drawdown is still locked at $5K from the original balance (which in this case is $100,000).

 

Static (Fixed Drawdown) Pros:

  • Simple and predictable
  • You know your exact max loss from day one
  • Ideal for consistent traders who scale gradually

 

Static (Fixed Drawdown) Cons:

  • Doesn’t scale with profits
  • Doesn’t lock in gains (one big loss could wipe your progress)

 

Trailing Drawdown: Risk That Moves with You

A trailing drawdown moves upward as your account grows, locking in equity peaks as new thresholds.

 

There are two types of trailing drawdown:

1. Intraday Trailing: Drawdown updates in real time, based on unrealized equity. It is more aggressive and risky.

2. End of Day (EOD) Trailing: Updates only after trades close. It is more forgiving than intraday.

Example: You start with $100,000 and a $5,000 trailing limit, your equity grows to $110,000 → new stop out = $105,000. If equity drops below $105,000, you lose the account.

 

Trailing Drawdown Pros:

  • Locks in profits as you grow
  • Encourages consistency and discipline
  • Rewards smart equity management

 

Trailing Drawdown Cons:

  • Can be confusing to track
  • Intraday trailing can cause surprise breaches if trades reverse

 

Static vs. Trailing Drawdown

At their core, static drawdowns are simple and consistent. You start with a fixed limit, and that limit doesn’t change, no matter how well you trade. If your prop firm gives you a $100,000 account with a 5% static drawdown, that $5,000 limit stays the same from start to finish. It’s straightforward, ideal for traders who want predictability and a clear boundary to work within.

On the flip side, trailing drawdowns are dynamic. They rise with your profits, adjusting the maximum loss you can incur based on the highest point your equity reaches. So if you grow that same $100,000 account to $110,000, your drawdown limit trails up behind you say to $105,000. But here’s the twist: with intraday trailing, this adjustment happens in real time, even with floating (unrealized) profits, making it a lot easier to breach if your trades swing. End-of-day (EOD) trailing, however, is more forgiving as it only updates based on your closed profits at the end of each trading day.

The trade off is clear: static drawdowns offer clarity and stability but don’t reward your growth, while trailing drawdowns reward progress but demand tighter discipline. If you’re aggressive and like locking in profits, trailing might suit you. But if you value simplicity and prefer working with a fixed risk profile, static is the safer bet.

 

Why This Matters

Every prop firm structures its drawdown rules differently and that’s where Propvator becomes your best friend. It’s a platform built for traders who want to win, not guess.

 

What Propvator Does:

  • Runs giveaway campaigns regularly!
  • Reviews conditions most firms bury or are hard to find
  • Compares prop firms rules and conditions side-by-side
  • Educates traders with simplified guides, visuals, and updates
  • Explains complex rules like trailing vs. static in simple language
  • Tracks changes in firm policies so you’re never caught off guard
  • Provides traders like you the highest rate discounts, gives cashback, and sometime BOGO account.
  • And much, much more!

 

How to Trade Smart With Any Drawdown Rule

Whether you’re under static or trailing limits, here are a few best practices to protect your account:

 

Know Your Firm’s Rules

Some count open trades, others don’t. Some trail balance, some trail equity. Don’t assume. Instead, always make sure to verify.

 

Use Proper Risk Management

Risk 0.5%–1% per trade, always calculate your max loss buffer, don’t over-leverage just because the drawdown hasn’t hit yet.

 

Lock in Profits Before Scaling Up

Especially with trailing drawdowns, protect your gains early. Use partial closes to secure wins.

 

Avoid Holding Trades Overnight with Trailing Drawdown

Price gaps can cause breaches so make sure to close before session ends if the firm uses EOD trailing.

 

Understanding the difference between static and trailing drawdown can save your account, save your challenge, and protect your profits. So before you take any challenge, ask yourself:

➙ Do I understand the drawdown rules?

➙ Have I chosen the right firm for my strategy?

 

If not, head over to our home section to find prop firms that match your trading strategy.

 

Don’t just trade capital, trade smart, trade with clarity, trade with Propvator.