Prohibited Practices
Initial Drawdown Limit: $50,000 - 10% = $45,000
If the account equity drops to $45,000, the account will be in breach of the trailing drawdown rule.
Starting Balance: $50,000
Example:
Definition
At the start of trading, the trailing drawdown limit is set at -10% of the starting balance. This means that the trader cannot incur losses exceeding 10% of the initial account balance.
1. Initial Drawdown
New Drawdown Limit: $100,000 - 5% = $95,000
Profits earned before scaling are not included in the calculation of the new drawdown.
Scaled Balance: $ 100,000 (new balance granted through scaling)
Example:
Definition
For accounts that qualify for scaling (e.g., accounts that meet performance criteria and are granted higher balances), the trailing drawdown is recalculated to -5% of the new scaled balance, excluding any profits earned before scaling.
4. Scaling Impact
Even if the account balance grows to $ 60,000, the drawdown limit remains fixed at $ 47,500.
New Drawdown Limit (Post-Adjustment): $47,500
Example:
Definition
Once the trailing drawdown is updated to -5% of the starting balance, it remains fixed at this level and does not trail further. This ensures that the trader can retain their profits while adhering to the risk management framework.
3. Post-Adjustment
Initial Drawdown Limit: $50,000 × 1.05 = $52,500
New Drawdown Limit: $50,000 - 5% = $47,500
The trailing drawdown no longer follows equity upward beyond this point.
Starting Balance: $50,000
Example:
Definition
When the trader achieves a 5% gain on the starting balance, the trailing drawdown limit adjusts to -5% of the starting balance. This provides the trader with more breathing room to continue trading while protecting a portion of their gains.
2. Drawdown Adjustment
Key Benefits of Trailing Drawdown Rules
2.Incentivizes Consistency
1.Risk Management
Encourages traders to manage their accounts conservatively, avoiding large drawdowns that could lead to account breaches.
Traders are rewarded for consistent performance by locking in their progress through drawdown adjustments.
Even with scaling, the drawdown limit adjusts proportionately, allowing traders to handle larger account sizes responsibly.
3.Encourages Growth with Safety
4.Prevents Overtrading
By setting a fixed drawdown limit after adjustments, traders are discouraged from taking excessive risks to chase further profits.
Trailing Drawdown Rules: Detailed Explanation
Trailing drawdown rules are designed to ensure that traders manage their risk effectively while rewarding consistent performance. Below is a detailed breakdown of how these rules operate and their implications:
Prohibited Practices
Summary Table: Trailing Drawdown Rules
By understanding and adhering to these rules, traders can focus on sustainable growth while maintaining compliance with the firm’s risk management standards.
Stage
Initial Drawdown
Drawdown Adjustment
Post-Adjustment
Scaling Impact
Condition
Start of trading
Achieve 5% gain
After adjustment
Upon account scaling
Drawdown Limit
-10% of starting balance
Updates to -5% of starting balance
Fixed at -5% of starting balance
-5% of new scaled balance (excluding profits)
Summary Table: Trailing Drawdown Rules
Stage
Initial Drawdown
Drawdown Adjustment
Post-Adjustment
Scaling Impact
Condition
Start of trading
Achieve 5% gain
After adjustment
Upon account scaling
Drawdown Limit
-10% of starting balance
Updates to -5% of starting balance
Fixed at -5% of starting balance
-5% of new scaled balance (excluding profits)
By understanding and adhering to these rules, traders can focus on sustainable growth while maintaining compliance with the firm’s risk management standards.
Profit split scaling is designed to reward traders based on their performance and preferences, giving them flexibility in how they share profits with the firm.
Profit Split Scaling
The payout process is designed to ensure traders receive their earnings promptly and conveniently.
Payouts
Holding positions for extended periods, such as overnight or over weekends, requires careful consideration of market conditions and specific account rules.
Holding Positions
More Trading Rules