Is a drawdown limit on balance or equity?

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.

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 define each variant precisely, including the interactions; drawdown and risk of ruin carry the surrounding mathematics.

Where this leads

If you are choosing or trading an evaluation, the 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 does as a one-off, on the published method, without you installing anything.