Drawdown and risk limits
Equity curve
A chart of account equity over time. Its slope shows the rate of return, its smoothness shows consistency, and its deepest dip is the peak-to-trough drawdown a risk limit would have had to absorb.
GFN’s figure
GFN publishes the live equity curve for each account in the Trade Hub dashboard, alongside the objectives and the current distance to each limit - the same figures the account is judged on.
In detail
Equity curve,explained
The shape matters more than the endpoint for a prop account. Two strategies that finish the month at the same profit are not equivalent if one got there in a straight line and the other spent a week 6% underwater - only one of them survives a fixed floor.
An equity curve drawn from live equity rather than closed balance is the one worth reading, because it includes the open positions that risk limits are actually measured against.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Peak-to-trough
The decline from an equity curve's highest point to its lowest subsequent point before a new high is made. It is the standard way of stating how deep a strategy's worst historical losing run was.
High-water mark
The highest level an account has ever reached. On a trailing drawdown it is the reference point the floor is measured down from, so every new high permanently moves the breach level upward.
Drawdown recovery
The gain required to return an account to its previous peak after a loss. Recovery is not symmetrical: a 10% loss needs an 11.1% gain to undo, and a 50% loss needs 100%.
Equity-based drawdown
A drawdown measured against live account equity, which includes the unrealised profit and loss of every open position. The breach level can be touched while a trade is still running, before anything is closed.
Trade journal
A record of every trade with its reasoning, size, levels and result. It is the only way to find out whether a strategy is being followed, as distinct from whether it is working.
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