What Is Trailing Drawdown in Prop Trading?
Trailing drawdown is a core risk management rule used by many proprietary trading firms to limit losses and protect their capital. Unlike a fixed drawdown, which only considers losses from your initial starting balance, a trailing drawdown 'moves up' as your account hits new equity highs. Understanding how this rule works—and how it differs from other drawdown types—is essential for any trader aiming to pass a prop firm challenge and keep a funded account.
How Trailing Drawdown Works: The Basics
At its core, trailing drawdown tracks your account's highest realized balance (sometimes equity) and sets a maximum allowable loss below that peak. If your account balance ever falls below this moving threshold, you violate the rule and lose your account or fail the challenge.
- Trailing drawdown moves up as you make new profits.
- Fixed drawdown stays at a set value relative to your starting balance.
- Some firms trail on closed balance, others on intraday equity.
For example, if your $100,000 account has a 6% trailing drawdown, your max loss is $6,000. If you grow the account to $110,000, your trailing drawdown 'moves up' so your new max loss is $6,600 from the new high-water mark.
Why Does Trailing Drawdown Matter?
The trailing drawdown rule can be more restrictive than a fixed drawdown, especially if you take profits and then experience a drawdown, as your 'cushion' for losses doesn't stay at its maximum size. This often catches traders off guard—especially those coming from retail trading or firms like FTMO, which use a fixed drawdown model.
Comparison: Trailing Drawdown Rules at Top Prop Firms
Not all prop firms use trailing drawdown, and those that do often implement it differently. Here's a direct comparison of how FTMO, FundedNext, Apex Trader Funding, and TopStep handle drawdown rules:
| Firm | Drawdown Type | Max Drawdown | Daily Drawdown | Profit Target | Key Detail |
|---|---|---|---|---|---|
| FTMO | Fixed (Balance) | 10% | 5% | 10% | Drawdown never trails up—remains $10,000 below start for $100K account |
| FundedNext | Fixed (Balance) | 10% | 5% | 10% | Similar to FTMO; cushion remains constant |
| Apex Trader Funding | Trailing (Balance) | 6% | None | 6% | Drawdown trails realized balance up to initial starting balance, then locks |
| TopStep | Trailing (EOD Balance) | 4% | 2% | 6% | End-of-day trailing on Express, intraday on PRO |
Key Takeaways from the Comparison
- FTMO and FundedNext use fixed drawdown—trader-friendly for swing or high-volatility strategies.
- Apex Trader Funding and TopStep use trailing drawdown—riskier for traders who give back profits.
- Trailing drawdown at Apex and TopStep locks at starting balance; after that, only losses count.
- Daily drawdown adds a second layer of risk control at FTMO, FundedNext, and TopStep.
Examples: Trailing Drawdown in Action
Let's break down exactly how trailing drawdown affects your trading with real numbers from the listed firms.
Apex Trader Funding: $100K Account Example
- Starting Balance: $100,000
- Max Trailing Drawdown (6%): $6,000
- Trailing Type: Follows highest closed balance until account returns to starting balance, then locks
Suppose you make $3,000 in profit. Your new high-water mark is $103,000, so your trailing drawdown moves up to $97,000. If you then lose $4,000 (dropping to $99,000), your trailing drawdown remains at $97,000—so you have $2,000 'cushion' left. If you lose all your gains back to $100,000, your trailing drawdown stops trailing and locks at $100,000 - $6,000 = $94,000. From that point, you can lose $6,000 before violating the rule, regardless of future profits.
TopStep: $100K Account, EOD Trailing Example
- Starting Balance: $100,000
- Max Trailing Drawdown (4%): $4,000
- Trailing Type: End-of-day balance
Every day, TopStep checks your closing balance. If you reach $102,000, the trailing drawdown moves to $98,000. If you then drop to $101,000, your trailing drawdown remains at $98,000. If you fall below $98,000 at any point, you fail. On PRO accounts, drawdown can trail intraday, meaning even open losses can trigger a violation.
FTMO & FundedNext: Fixed Drawdown Example
- Starting Balance: $100,000
- Max Drawdown (10%): $10,000 (cannot go below $90,000 at any time)
- Daily Drawdown (5%): $5,000 (cannot lose more than $5,000 in a single day)
No matter how high your balance goes, your max loss is always $10,000 from the starting balance. This gives you more flexibility to recover from drawdowns after hitting equity highs.
Pros and Cons: Trailing Drawdown vs. Fixed Drawdown
| Drawdown Type | Pros | Cons | Best For |
|---|---|---|---|
| Trailing |
|
|
Scalpers, day traders, consistent withdrawers |
| Fixed |
|
|
Swing traders, high-volatility strategies, traders new to prop |
Real-World Trade-Offs
Trailing drawdown looks fair on paper, but in practice, it can be punishing if you hit a big profit, then have a rough patch. For example, a $100K Apex account with a $6,000 trailing drawdown that grows to $110,000 means your drawdown 'trails' to $104,000. If you then lose $6,000 (down to $104,000), you instantly fail—even though you're still above your starting balance.
With fixed drawdown (FTMO, FundedNext), you'd still have your full $10,000 'buffer' below your starting balance, so you'd survive the same scenario.
Firm-by-Firm: Drawdown Specs and Implications
FTMO
- Drawdown: Fixed, 10% (all account sizes)
- Daily Loss Limit: 5%
- Pros: Predictable, easier to manage risk
- Cons: 10% profit target is demanding; higher evaluation cost ($155-$1,080)
FTMO’s fixed drawdown is forgiving for swing traders or those who want to let winners run. If you’re learning prop trading, this model is easier to survive. But their 10% profit target and strict daily loss limits mean you still need tight discipline.
FundedNext
- Drawdown: Fixed, 10%
- Daily Loss Limit: 5%
- Pros: Earn 15% profit share during challenge, scale up to $4M
- Cons: Some rule complexity, withdrawal minimums, newer firm
FundedNext offers a similar drawdown model to FTMO, but with lower starting costs ($59+) and the ability to earn during the challenge. Their rules are a bit more complex, so read the fine print on when and how drawdown is triggered.
Apex Trader Funding
- Drawdown: Trailing, 6% (locks at starting balance)
- Daily Loss Limit: None
- Pros: 100% profit split for first $25K, trade up to 20 accounts, frequent discounts
- Cons: Trailing drawdown can be tricky, futures only, monthly fee after evaluation
Apex’s trailing drawdown is the #1 reason traders fail their evaluation. Many ignore that the buffer shrinks as they profit. However, with no daily loss limit and 100% profit split on your first $25K, disciplined traders can earn more—if they adapt to the model. Use the PropSurvivalEngine health grades to see how your trading style stacks up here.
TopStep
- Drawdown: Trailing, 4% (EOD balance)
- Daily Loss Limit: 2%
- Pros: Proven track record, path to real capital, low monthly cost ($49+)
- Cons: Trailing drawdown (intraday on PRO), 50% consistency rule, no automated EAs
TopStep’s lower drawdown (4%) and EOD trailing model make it less forgiving than FTMO, but more transparent than some competitors. The 50% consistency rule means you can’t make most of your profit in a single day. This is best for steady, consistent futures traders.
How to Survive Trailing Drawdown: Practical Tips
- Lock in profits regularly. Withdraw or reduce size after big wins to prevent a shrinking drawdown buffer.
- Track your trailing threshold daily. Use spreadsheets or the PropSurvivalEngine calculator to know your exact risk at all times.
- Avoid overtrading after hitting new highs. A cold streak after a winning run is the fastest way to fail a trailing drawdown rule.
- Adjust your risk per trade as your account grows. Don’t assume your loss buffer is growing—often, it’s shrinking!
- Be wary of scaling up too quickly. More size means bigger swings, which can trigger the trailing threshold unexpectedly.
Common Mistakes Traders Make with Trailing Drawdown
- Ignoring the trailing threshold after a winning streak
- Overtrading to 'make back' losses, not realizing the buffer has moved up
- Confusing balance-based and equity-based trailing drawdown
- Assuming all firms trail to infinity—many lock at starting balance, but not all
Bottom Line: Which Drawdown Model Is Right for You?
Trailing drawdown is a double-edged sword: it rewards consistent, disciplined profit-taking but punishes traders who give back gains. If your style involves large swings or you’re new to prop trading, a fixed drawdown firm (FTMO, FundedNext) offers more forgiveness and a safer learning environment. If you’re a scalper, day trader, or already have tight risk controls, Apex Trader Funding or TopStep can offer higher profit splits and more leverage—but only if you respect the trailing drawdown’s moving target.
Before choosing a firm, compare their rules side-by-side and use the PropSurvivalEngine calculator to stress-test your strategy against their specific drawdown models. The best prop firm for you is the one whose risk controls match your trading strengths—not just the one with the highest payouts or lowest fees.