Prop Firm Max Drawdown: How the Maximum Loss Limit Works on a Funded Account
The max drawdown is the total loss a prop firm account can take before it ends. Here is how it works in dollars, how it differs from the daily limit and how to size around it.
OctoFunded Trading DeskUpdated ยท 8 min read
The prop firm max drawdown is the largest total loss an account can take before it is closed. If you know that number in dollars, and whether the floor stays still or moves, you know how much room every trade in your challenge or funded trading account really has.
Most traders read the profit target first. The max drawdown is the rule that decides whether you are still trading next month, so this guide puts it first: what it is, how it is measured, how it differs from the daily limit, and how to size trades around it on a $100K simulated account.
Key takeaways
- Max drawdown is a total, not a daily number: it caps the loss across the whole life of the account.
- Turn it into dollars: 10% of $100K is $10,000. Write that number on your plan, not the percentage.
- Static or trailing changes everything: a static floor stays put; a trailing floor follows new highs up.
- The daily limit usually hits first: one bad day ends more accounts than a slow slide does.
- Size from the floor backwards: your worst losing streak should use only part of the max drawdown.
What is max drawdown in a prop firm?
Max drawdown in a prop firm is the total loss limit for the account. It is set as a percentage of the starting balance, and it creates a floor: if the account reaches that floor, the account is breached and closes.
If the model is new to you, start with how a funded trading account works. You pay a one-time fee, trade on simulated capital, and the firm sets loss limits that protect its risk. The max drawdown is the outer wall. The daily loss limit is an inner wall that resets each day.
Firms use different names for the same idea: max drawdown, maximum loss, max loss limit or overall drawdown. Read the formula, not the label.
How is the maximum drawdown measured?
The maximum drawdown is measured from a reference point to a floor. Two questions decide how tight it is:
- What is the reference point? Usually the starting balance. Some rules use the highest balance or equity the account has reached.
- What touches the floor? Some firms check closed balance only. Others check equity, which includes open floating losses.
| Question | Option A | Option B | Which is tighter |
|---|---|---|---|
| Reference point | Starting balance (static) | Highest point reached (trailing) | Trailing |
| What is checked | Closed balance | Equity with open trades | Equity |
| When the floor moves | Never | When a new high is made | Moves = tighter |
| Does it ever stop moving | Not applicable | At a set level, or never | Never stopping = tighter |
Two firms can both say "8% max drawdown" and mean very different floors. A static 8% on $100K stays at $92,000 forever. A trailing 8% can move above that as the account grows. Our guide to static vs trailing drawdown compares both in detail, and trailing drawdown explained walks through how a moving floor behaves trade by trade.
What is the difference between max drawdown and the daily loss limit?
The daily loss limit caps the loss in one trading day. The max drawdown caps the loss across the whole account. They work together, and either one can end the account.
| Daily loss limit | Max drawdown | |
|---|---|---|
| Time frame | One day, resets daily | The life of the account |
| Typical size | Smaller (for example 3% to 5%) | Larger (for example 8% to 12%) |
| What usually breaks it | One oversized day | Many losing days in a row |
| How to protect it | A daily stop in your plan | Risk per trade sized to your streaks |
In practice, the daily loss limit is the rule most traders break first, because one day of revenge trades can burn through it fast. The max drawdown is the slow risk: a week of small losses that never trigger the daily limit can still walk the account down to its floor.
How does max drawdown work on a $100K simulated account?
Here is an illustrative example with round numbers. It is not tied to any plan price and the trades are invented.
The setup. A $100K simulated account with a 10% static max drawdown and a 5% daily loss limit. The floor sits at $90,000. The trader risks $500 per trade (0.5%).
| Step | Event | Balance | Room to floor |
|---|---|---|---|
| Start | Account opens | $100,000 | $10,000 |
| Week 1 | 6 losses, 2 wins at 2R | $99,000 | $9,000 |
| Week 2 | 4 losses in a row | $97,000 | $7,000 |
| Week 3 | 6 wins at 2R, 1 loss | $102,500 | $12,500 |
| Week 4 | 8 losses over 4 days | $98,500 | $8,500 |
What the table shows. The worst stretch, 8 losses in a row, cost $4,000. That used 40% of the $10,000 room the account had at the start. No single day came near the $5,000 daily limit. With a static floor, the profit from week 3 added room, because the floor stayed at $90,000.
The same trades on a trailing floor. Suppose the floor instead trailed 10% behind the highest balance. After week 3, the high is $102,500, so the floor could rise to $92,500. The week 4 slide to $98,500 now leaves $6,000 of room, not $8,500. Same trades, less space.
The same trades at 2% risk. If the trader risked $2,000 per trade, the 8-loss stretch would cost $16,000, which is more than the whole max drawdown. The account would have ended in week 2. The rules did not change; the size did.
How much should you risk per trade with a max drawdown?
You should risk an amount where your worst realistic losing streak uses only part of the max drawdown. Work backwards from the floor:
- Find your longest losing streak from your journal or demo history. Add a few trades for safety.
- Decide how much of the max drawdown that streak may use. Many traders pick half or less.
- Divide. If 12 losses may use 5% of the account, risk per trade is about 0.4%.
| Max drawdown | Risk per trade | Losses to reach the floor (no wins) |
|---|---|---|
| 8% | 0.5% | 16 |
| 8% | 1% | 8 |
| 10% | 0.5% | 20 |
| 10% | 1% | 10 |
| 12% | 0.5% | 24 |
The table ignores wins and costs, so treat it as a ceiling, not a plan. Our guide on risk per trade on a funded account covers sizing in more detail, and if you are already deep in a loss, read how to recover from a drawdown without sizing up.
What breaks the max drawdown most often?
The max drawdown is rarely broken by one trade. It is usually broken by a pattern:
- Sizing up after losses to get back to the start faster.
- Holding a loser past the stop, so floating loss grows on an equity-based floor.
- Reading the percentage, not the dollars, and forgetting how much room is really left after a slide.
- Forgetting that a trailing floor moved after a good week.
- Trading without a weekly stop, so a bad week runs into a bad month.
Know in advance what happens if you breach a rule, so the floor is a number you respect rather than a surprise. A breach on a prop firm challenge or funded account usually ends that account, whatever the profit before it.
What is the max drawdown on OctoFunded programs?
These are the confirmed loss limits on OctoFunded programs, all on simulated capital:
| Program | Max loss | Drawdown type | Daily loss limit |
|---|---|---|---|
| 2-Step | 10% | Static | 5% |
| 1-Step | 8% | Trailing | 4% |
| Instant Funded | 12% | Static | 3% |
On a $100K simulated account, that is $10,000 of total room on the 2-Step, $8,000 on the 1-Step and $12,000 on Instant Funded. Note how they pair up: Instant Funded has the widest max loss but the tightest daily limit, so a single heavy day is its main risk. The 1-Step has the tightest total room and a floor that trails, so its sizing should be the most careful.
Read the OctoFunded program rules for exactly how each floor is calculated, including how the 1-Step trailing floor moves, before you buy. There is no time limit on any program, so there is never a deadline that forces you to size up. Payouts are subject to the program rules.
FAQ
What is max drawdown in a prop firm?
Max drawdown is the total loss an account can take before it ends. It is set as a percentage of the starting balance, so a 10% max drawdown on a $100K simulated account is a $10,000 loss. If equity or balance reaches that floor, the account is breached.
What is the difference between max drawdown and daily loss limit?
The daily loss limit caps how much you can lose in one day, while the max drawdown caps the total loss across the whole life of the account. You can break the daily limit long before you reach the max drawdown, and several small losing days can reach the max drawdown without ever touching the daily limit.
Is a static or trailing max drawdown better?
A static max drawdown keeps the floor in one place, so profit adds room. A trailing max drawdown moves the floor up as the account makes new highs, so the room stays tighter. Static is usually easier for beginners; trailing can fit traders with steady, small losses.
How much should I risk per trade with a 10% max drawdown?
A common approach is to size so that a long losing streak uses only part of the floor. At 0.5% risk per trade, 10 losses in a row cost 5%, which leaves half of a 10% max drawdown. Pick a number from your own losing streaks, not from a target you want to reach.
What is the max drawdown on OctoFunded programs?
The 2-Step has a 10% static max loss, the 1-Step an 8% trailing max loss and Instant Funded a 12% static max loss, all on simulated capital. Read the program rules page for how each floor is calculated before you buy.
Pick the floor that fits your worst week
Write your worst losing streak in dollars, then compare it to each program's max loss on simulated capital. The 2-Step, 1-Step and Instant Funded rules are published before you buy, with a one-time fee and no time limit.
