Challenge: What is the max absolute drawdown?

Drawdown represents the reduction in equity or balance during trading, emphasizing risk management. For our funding programs, the drawdown is measured as balance-based and varies by the specific challenge.

1-Step Challenge: Drawdown Type and Calculation

• Drawdown Type: Balance-Based

• Drawdown Calculation: Trailing

Maximum Absolute Drawdown (MAD)

The MAD is set at 5% of the highest balance achieved. Unlike the static approach, the trailing drawdown adjusts with increases in balance, maintaining the threshold relative to the highest achieved balance.

Formula:
MAD = 5% × Highest Balance Achieved
Stopout Level (SOL) = Highest Balance Achieved – MAD

Example:
For an initial account balance of $100,000:

• Starting MAD = $100,000 × 5% = $5,000
• Starting SOL = $100,000 – $5,000 = $95,000

If the balance grows to $120,000:

• New MAD = $120,000 × 5% = $6,000
• New SOL = $120,000 – $6,000 = $114,000

2-Step Challenge: Drawdown Type and Calculation

• Drawdown Type: Balance-Based
• Drawdown Calculation: Static 

Maximum Absolute Drawdown (MAD)
The MAD is set at 10% of the initial account balance. This means your losses must never exceed 10% of the starting balance during the challenge.

Formula:
MAD = 10% × Initial Account Balance
Stopout Level (SOL) = Initial Account Balance – MAD

Example:
For an initial account balance of $100,000:

• MAD = $100,000 × 10% = $10,000
• SOL = $100,000 – $10,000 = $90,000

How Drawdown Differs Between the Two Challenges

Want to learn about drawdown in prop trading? Check out this insightful blog post: What is Drawdown in Prop Trading?