Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Glossary

Drawdown explained

Drawdown measures the hole you are in, not the last trade. It is the drop from the highest equity you have seen to the lowest point after that peak.

Term
Drawdown
Also
Peak-to-trough decline
Use
Education only — not a trade signal
DefinedTerm · Drawdown
How far an account or equity curve has fallen from its highest point, usually shown as a percentage.
What
How far an account or equity curve has fallen from its highest point, usually shown as a percentage.
Not
A recommendation to buy, sell, or hold any instrument.
Next
Read the related tools, then size risk in pounds — not in hope.
Free
The whole glossary is public. No account required.
Definition

The working meaning

If an account grew from £1,000 to £1,400 and then fell to £1,120, the drawdown is £280 from the peak — 20%. The starting balance is irrelevant to that figure. Traders quote maximum drawdown as the worst such peak-to-trough stretch on a track record.

A strategy can be profitable over a year and still have a drawdown large enough to force you out if you cannot tolerate it. Recovery is asymmetric: a 50% drawdown needs a 100% gain to get back to the old peak.

Position size and leverage decide how fast drawdown arrives. The leverage page and the position-size calculator exist so you can see that math before a live account does it for you.

Keep going

Other terms in this set

Slippage

The difference between the price you expected and the price at which the order actually filled.

Order Block

A chart zone some traders treat as leftover institutional buying or selling, used as a possible future reaction area.

Swap Rates

The overnight interest credited or charged when a leveraged position is held past the provider’s rollover time.