What is Drawdown?
A Drawdown refers to how much an investment or trading account is down from the peak before it recovers back to the peak.
Drawdowns are typically quoted as a percentage, but dollar terms may also be used if applicable for a specific trader. Drawdowns are a measure of downside volatility.
In terms of max drawdown, this is when a trader has exceeded the maximum loss on their account. When the maximum loss has been exceeded, this is what we call a breach.
Drawdown on all Smart Accounts starts at -10% and then will move to -5% of the Starting balance once the account has made a 5% gain in balance.
So what is Smart Drawdown?
Smart Drawdown is a model combining the best of both static and trailing drawdowns.
This means:
-no time limits on challenges
-reduced costs
-Improved profitability through easier scaling opportunities
-Knowing what your drawdown is and it only changes once.
How does Smart Drawdown work?
Our Smart Drawdown model is designed to enhance your trading experience and offer better prices and conditions.
Unlike other trailing drawdown firms with a -5% or -6% drawdown (maximum loss), our Smart Drawdown starts at -10% and remains static until you are well into profit, at which point it moves once.
Smart Drawdown operates in a unique way: once a trader reaches a balance gain of 5% or more, our system will automatically update their drawdown to the -5% of the starting balance, and it will remain at this level. This means that traders can continue to trade freely, without worrying about their drawdown percentage increasing beyond -5% of their starting balance.
Once your Drawdown has updated to -5% of your starting balance it will then never move from here, unless you scale your account. At this point, your drawdown will be updated to -5% of your new scaled balance, excluding any profits.
Smart Drawdown offers more significant benefits to our traders, including better pricing conditions, no time limits, faster scaling, and faster profit split scaling.
Example
Let’s say you start with a $100,000 Smart Instant Account.
When you first receive your credentials your drawdown (maximum loss) will be Static at -10% ($90,000 in this case).
Once you make a 5% gain on your account, (5% gain on $100,000 is $5000 so your account now has $105,000).
Your drawdown will then update to – 5% below your starting balance ($95,000). This will then never move from here.
Note this 5% drawdown will NEVER move again from this spot, allowing us to reduce our risk and pass these benefits on to you, with no time limits, lower prices, larger profit splits, faster scaling and more!