Drawdown and risk limits
Non-trailing drawdown
A maximum drawdown calculated once against the starting balance and then left alone. The breach level is the same number on your first day and after months of profit, so the cushion grows with every dollar you make.
Also called: Static drawdown · Fixed drawdown · Absolute drawdown
GFN’s figure
The GFN 2 Step uses a 8% non-trailing maximum drawdown - the only programme of the three where the floor is fixed from day one and never follows the account up.
- 2 StepMax drawdown
- 8%, fixed against the starting balance
- 2 StepFloor on a $100,000 account
- $92,000
- InstantMax drawdown
- 5%, trailing instead
A 2 Step retake keeps the non-trailing structure at a tighter 4%.
In detail
Non-trailing drawdown,explained
A fixed floor is the friendlier structure for a trader who runs an account far into profit, because the distance between equity and the breach level widens as the account grows. It is also the simpler one to trade against: the number never changes, so it can be written on a sticky note.
The trade-off is usually made elsewhere in the programme. A firm offering a fixed floor generally asks for a profit target, a second phase, or both, because it is carrying more risk once the account is well into profit.
Worked example
On a $100,000 2 Step account the floor is $92,000. Whether your equity is $100,000 or $130,000, the account breaches at $92,000 - at $130,000 that is a cushion of $38,000.
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.
Maximum drawdown
The total loss an account may take before it is failed. Expressed as a percentage of the starting balance, it sets a floor: touch it and the account breaches, whatever the account has made up to that point.
Trailing drawdown
A maximum drawdown whose floor follows the account upward as it makes new highs. The distance between your peak and the breach level stays constant, so every new high moves the stop-out level with it.
Drawdown floor
The account level at which a maximum drawdown breach is recorded. It is the starting balance minus the drawdown allowance, expressed as a dollar figure rather than a percentage, and it is the single number to trade against.
Balance-based drawdown
A drawdown measured against closed balance rather than live equity. Floating losses on open positions do not move the breach level; only realised results do, once a trade is closed.
Two-step evaluation
An assessment split into two phases with separate profit targets. The first phase proves the strategy, the second - usually at a lower target - checks it repeats before the firm issues a simulated funded account.
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