Trailing Drawdown Explained for Futures Prop Traders

A trailing drawdown sets your account floor a fixed dollar amount below your highest balance. When your balance reaches a new high, the floor rises with it. The floor never moves back down, so profit gives you more room only until the floor catches up with the account’s starting balance, where many firms stop it from rising further.

Take a $50,000 account with a $2,000 trailing drawdown. At the start, the floor is $48,000. If your balance rises to $51,000, the floor trails up to $49,000. If you then lose $1,500, your balance is $49,500, only $500 above the floor, even though you started the day in profit.

The trailing floor means giving back open profit costs you real room. Many breaches happen not because a trader lost their starting balance, but because they gave back profit after a good run.

Size your risk as a fraction of the distance to the floor, not of the account size. Use the buffer between balance and floor as your true risk capital, and cut size when the buffer shrinks.

• Check the distance to the floor before each session
• Reduce size after a drawdown rather than increasing it
• Know whether your firm’s floor stops rising at the starting balance