# Is a drawdown limit on balance or equity? > The breach that surprises traders is computed on equity while they watched balance. How the definitions differ, why trailing limits bite, how to check yours. - Canonical: https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/ - Published: 2026-08-02 - Author: Hadal Research - Answers the question: "is my drawdown limit calculated on balance or equity" - Coins the term: **The Definition Gap** — The distance between the account curve a trader watches and the one the firm's engine computes — the source of breaches that surprise, where both sides were right about the number they were watching. --- ## The short answer Read the rule text, because the word "drawdown" does not tell you. The two common anchors — **balance** (closed trades only) and **equity** (balance plus open positions, marked to market) — produce different numbers whenever you hold a position, and the difference is largest exactly when it matters: when a trade is running hard in either direction. The breaches that surprise people are almost never arithmetic errors. They are **definition gaps**: the trader watched one curve while the firm's engine watched another, and both were right about the number they were watching. **WHAT THIS IS — AND WHAT IS NOT PUBLISHED.** This article is method: how the definitions differ and how to check the one that governs you. **No firm's rules are quoted, audited or ranked here**, no breach statistics are published, and none should be inferred. Where your own case needs reconstructing, that is a measurement — see the close of this piece. Status of any measured claim: `NOT YET PUBLISHED`. ## Prerequisite Knowledge You need the firm's rule document as it was published to you — the dashboard page, PDF or FAQ that defines your programme's limits — and your platform's statement export. Not a forum summary of the rules, and not the marketing page: the governing text is the one attached to your programme, and firms legitimately run different definitions across different programmes at the same time. ## The four questions the rule text answers Every drawdown regime is a combination of four choices. Find each one in your rules; any the text does not answer is a question for the firm's support desk *before* the next position, not after. ### 1. Anchor: balance or equity? A **balance** limit moves only when trades close. An **equity** limit moves with every tick of every open position. Under a balance limit, an open trade can be arbitrarily underwater without breaching — until you close it. Under an equity limit, a sufficiently deep floating loss *is* the breach, even if the position would have recovered an hour later. ### 2. Static or trailing? A **static** limit is a fixed line below your starting level. A **trailing** limit follows your peak upward — and this is where the anchor choice compounds: a trailing limit on *equity* ratchets up on unrealised profit. Run an open position four thousand pounds into profit and give it back, and you have travelled four thousand pounds of drawdown against a mark you never banked. This interaction — trailing × equity — is the single mechanism behind the debunked claim above, and it is worth reading your rules twice for. ### 3. Does the trail lock? Some trailing limits stop once they reach the starting balance (the account becomes "risk-free" to the firm); some trail forever. The difference decides whether banked profit ever becomes safe cushion or remains permanently at risk of being consumed by the trail. ### 4. Sampled when? Tick-by-tick, end-of-candle, or end-of-day. An end-of-day sampled limit can be pierced intraday without consequence; a tick-sampled one cannot. Daily-loss limits add the reset question: *which* midnight, and whether the day anchors to balance-at-reset, equity-at-reset, or the higher of the two. ## How to check your own account in ten minutes Export your statement, then build both curves in a spreadsheet: cumulative balance from closed trades, and equity by adding each open position's running mark (your platform's statement shows floating P&L at each snapshot; end-of-day resolution is enough to see the shape). Overlay the limit as your rules define it — anchor, trail, lock, sampling — and look at the *gap* between the two curves at your worst moments. If the gap ever exceeds your remaining headroom, you have been closer to a breach than the curve you watch admits. The [glossary entries](/glossary/trailing-drawdown/) define each variant precisely, including the interactions; [drawdown](/glossary/drawdown/) and [risk of ruin](/glossary/risk-of-ruin/) carry the surrounding mathematics. ## The Observable Mechanism Everything here is computable from two documents you already hold: the rule text and your own statement export. No firm-side data, no special access. That is deliberate — a constraint you cannot verify from your side of the account is a constraint you are trading against blind, and the first useful act is discovering whether that is your situation. ## What This Does Not Establish (The Limits) This article establishes how definitions differ — not which definition any named firm uses, whether any firm's implementation matches its published text, or whether a specific breach was computed correctly. Those are measurements against a particular rule set and a particular statement, and they are exactly what this article cannot honestly assert in general. It also does not establish that one definition is fairer than another: a tick-sampled equity trail is harsher than an end-of-day balance line, but harshness disclosed in advance is a term, not a trick. ## Where this leads If you are choosing or trading an evaluation, the [Prop-Evaluee Risk Guardian](/instruments/prop-evaluee-risk-guardian/) exists to hold your positions against your programme's actual rule set continuously, so the definition gap is computed rather than discovered. And if the breach has already happened and the question is *what actually killed the account*, that reconstruction — your statement against your rule text, the halt-distance timeline, the rule interaction that fired — is precisely what the [Prop-Breach Forensics assay](/assays/#prop-breach-forensics) does as a one-off, on the published method, without you installing anything. --- ## Claims examined ### Claim 01 — canonical: https://hadalinstruments.com/refutations/#claim-1aced519 > "Unrealised profit can't cause a breach — I haven't closed anything." — our reading: False Under an equity-based trailing limit, unrealised profit raises the high-water mark the moment it exists, and the limit trails that mark. A position that runs well and then retraces can drag the account through a threshold that did not exist before the position was opened — without a single closed losing trade. Whether this can happen to you is entirely a property of the rule text, and it is the single most common way a profitable-looking evaluation dies. **What is true:** Under an equity-based trailing limit, unrealised profit raises the high-water mark the moment it exists and the limit trails that mark — a position that runs well and retraces can drag the account through a threshold that did not exist before the trade was opened. Evidence: https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/#claim-1aced519 ### Claim 02 — canonical: https://hadalinstruments.com/refutations/#claim-c9d3bef0 > "Daily loss limits reset at midnight, so I know where I stand each morning." — our reading: Unproven Which midnight? Server time, UTC, New York five o'clock, or the firm's registered timezone can differ by a full session, and whether the day's anchor is the balance at reset, the equity at reset, or the higher of the two changes where the line sits all day. Every one of those is a legitimate design choice some firm has made. The rule text answers it; the assumption does not. **What is true:** The reset is whatever your rule text says it is — server midnight, UTC, exchange close or the firm's registered timezone, anchored to balance, equity or the higher of the two — and every combination is a design some firm has legitimately made, so the answer lives in your programme's document, not in convention. Evidence: https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/#claim-c9d3bef0 ### Claim 03 — canonical: https://hadalinstruments.com/refutations/#claim-266a3fdb > "All prop firms calculate drawdown the same way — it's a standard term." — our reading: False Static versus trailing, balance-anchored versus equity-anchored, end-of-day sampled versus tick-sampled, high-water-mark locking versus perpetual trailing — the market contains every combination, sometimes at the same firm across different programmes. The word 'drawdown' in two firms' rules can name two materially different constraints, which is precisely why the definition has to be read rather than assumed. **What is true:** The market contains every combination — static or trailing, balance- or equity-anchored, tick-sampled or end-of-day, locking or perpetual — sometimes at the same firm across programmes, so the word names a family of materially different constraints and only your programme's rule text says which one governs you. Evidence: https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/#claim-266a3fdb ## Cite This Article APA BibTeX HTML Hadal Research. (2026). Is a drawdown limit on balance or equity?. Hadal Research. https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/ Version 3c10f7e, 2026-08-03. @misc{hadal_2026_is-my-drawdown-on-balance-or-equity, author = {Hadal Research}, title = {Is a drawdown limit on balance or equity?}, year = {2026}, url = {https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity/}, howpublished = {Hadal Research}, version = {3c10f7e}, note = {Published: 2026-08-02; version dated 2026-08-03} } Source: Hadal Research, Is a drawdown limit on balance or equity?. Original Research Copy Citation **Version 3c10f7e** identifies the commit that last changed this page in Hadal's content repository. That repository is not public, so the identifier does not resolve externally — it is published so a citation pins one specific state rather than a moving page. To obtain the exact version cited, use the [press and research route](https://hadalinstruments.com/press/). ## Explore further ### Instruments - [Prop-Evaluee Risk Guardian](https://hadalinstruments.com/instruments/prop-evaluee-risk-guardian/) - [Stress Harness](https://hadalinstruments.com/instruments/stress-harness/) ### Concepts - [Drawdown](https://hadalinstruments.com/glossary/drawdown/) - [Risk of Ruin](https://hadalinstruments.com/glossary/risk-of-ruin/) - [Trailing Drawdown](https://hadalinstruments.com/glossary/trailing-drawdown/) ### Research - [Why was my account breached in profit?](https://hadalinstruments.com/research/why-was-my-account-breached-in-profit/) Asked as: why was my account breached while in profit - [What causes a prop firm drawdown breach?](https://hadalinstruments.com/research/what-causes-a-prop-firm-drawdown-breach/) Asked as: what causes a prop firm drawdown breach - [What a funded trading account breach means](https://hadalinstruments.com/research/what-a-funded-trading-account-breach-means/) Asked as: what does a funded account breach mean [All Hadal research](https://hadalinstruments.com/research/)[This article as plain markdown](https://hadalinstruments.com/research/is-my-drawdown-on-balance-or-equity.md) --- ## Raw artifact — NOT PUBLISHED FOR THIS PAGE No downloadable artifact ships with this page. Eight published measurements do, each content-hashed so a reader can verify the figures independently. Where a measurement is published here without one, that is a gap rather than a policy, and it is stated rather than left to be noticed. [Measurements that ship their data](https://hadalinstruments.com/research/)