A prop firm loss limit is measured in two ways, and they do not give the same answer. On static, it starts from your opening balance and never moves. On trailing, it follows your peak and does not come back down. Two accounts at the same balance can therefore sit at very different distances from disqualification.
Two rules, one account
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Static drawdown is the easier one to keep in mind: the firm sets a floor when the account opens, and that floor stays there. On a $50,000 account with a $2,000 limit, you are disqualified if the account goes under $48,000, and that stays true whether you made $500 or $5,000 along the way.
Trailing drawdown is measured differently: it starts from the highest point reached. Every new peak pulls the floor up by the same amount, and the floor never comes back down when the account does. That detail, and that detail alone, is what blows most challenges.
The diagram at the top of this page shows the exact consequence. The account starts at $50,000, climbs to $53,100, which pulls the trailing floor up to $51,100. It then falls back to $50,600, meaning $600 above where it started, and it is disqualified: it went under a floor that does not come back down. The static floor, meanwhile, sat at $48,000 and was never approached.
Static floor = opening balance − limit · Trailing floor = highest point reached − limit
The highest point reached is counted either intraday or at the daily close, and both conventions exist. An intraday trailing drawdown is checked tick by tick, including on a peak you never banked.
Some firms freeze the trailing floor once a threshold is reached, often the initial capital plus the limit. Others do not. It is written in the contract, nowhere else.
Balance and equity are not the same thing. Many firms measure drawdown on equity, so open positions included, which triggers on a floating loss you fully intended to close.
| Convention | What the floor follows |
|---|---|
| Static | The opening balance. The floor never moves for the whole challenge. |
| Intraday trailing | The highest point touched, even for a second, even unbanked. |
| End-of-day trailing | The highest closing balance. An unbanked intraday spike does not count. |
| Frozen trailing | The peak, up to a threshold; beyond it the floor freezes and stops moving. |
| On equity | Not a fourth convention but a precision added to the others: open positions count. |
The second and third rows cost the most, and the gap between them is enormous. On intraday trailing, a peak touched for a second and never banked raises your floor for good: you can be disqualified because of a gain that never reached your balance. On end of day, that same peak does not exist as far as the rule is concerned.
The fourth row is the one people forget to check and the one that changes everything after a good start. A trailing floor frozen beyond a threshold ends up behaving like a static one, and that is exactly the question traders ask a month after passing their challenge. The answer cannot be deduced, it is read in the firm's contract.
The same account, at the same moment, is compliant for a static firm and disqualified for a trailing one. It had $2,600 of room in one case, and had breached by $500 in the other. The trader did nothing differently: they simply had a good day before their bad day, and that is exactly what the trailing rule punishes.
On a challenge, the only question that matters day to day is the distance to the nearest rule. On trailing, that distance shrinks as you win, which is thoroughly counter-intuitive and appears nowhere in an ordinary journal.
That is why a prop firm account is not tracked with the same figures as an account trading its own capital. The classic maximum drawdown describes your worst past trough; the firm's rule describes how far you are from the door, right now.
At an equal loss limit, an intraday trailing challenge is markedly harder than a static one, and much harder than it looks. The gap does not show in the figures on the sales page, it shows in the convention written into the contract.
A style that lets winners run and gives back part of its MFE is the one most penalised by intraday trailing, since the floor latches onto the best moment of the trade rather than onto its exit.
The first flaw is assuming trailing stops at the initial capital. It is true at some firms and false at others, and nothing in the word 'trailing' says which. It is the most frequent question on the subject and it has only one valid answer, the one in the contract you signed.
The second is counting in balance when the firm counts in equity. A $400 floating loss on a position you fully intend to close does not move the balance and does lower the equity, and if the rule is on equity, it triggers without the balance having moved.
The third is trusting a journal that counts differently from the firm. A tool set to static on a trailing account will show 'within limits' while the firm says the opposite, and the firm is right. The convention is set once, at the start, and checked against the contract.
The classic mistake. Assuming trailing stops at the initial capital. Some firms freeze the floor once a threshold is reached, others let it follow the peak indefinitely, and nothing in the word lets you guess which. A journal set on the wrong assumption will tell you you are compliant at the exact moment the firm says otherwise, and the firm is the one holding the account.
| Indicator | Formula | What it measures | When to use it |
|---|---|---|---|
| Static drawdown | start − limit | A fixed distance to the opening balance | Knowing what can be lost in total |
| Trailing drawdown | peak − limit | A distance to the account's best moment | Knowing how far from the door you are |
| Maximum drawdown | worst peak → trough | The worst fall already endured | Describing the risk of a track record |
| Recovery factor | net P&L ÷ max drawdown | What the account returns per unit of fall | Comparing two accounts at equal risk |
Three things to find in the contract: static or trailing, intraday or end of day, on balance or on equity. It takes a minute and it beats anything a journal can display.
It is the most frequent question and the only one with no general answer. Some firms freeze the floor once initial capital plus the limit is reached, others let it run indefinitely.
A tool set to static on a trailing account will tell you you are within limits while the firm says otherwise. The convention is set at the start, and checked against the contract, not against a habit.
Trailing drawdown is a loss limit that follows the highest point the account reached: every new peak pulls it up by the same amount and it does not come back down. Intraday drawdown specifies when that peak is measured: tick by tick during the session, rather than at the daily close. The two combine, and an intraday trailing drawdown is the strictest convention.
Static punishes losing, trailing punishes giving a gain back. On static, the floor starts from the opening balance and never moves, so winning moves you away from the door. On trailing, the floor follows your peak, so a gain followed by a pullback can disqualify you while the account is still in profit.
It is a floor that follows the peak up to a threshold, often the initial capital plus the limit, then stops rising. Beyond that threshold the rule behaves like a static drawdown. Some firms do this, others do not, and it is written in their contract and nowhere else.
At some firms yes, at others no, and that is exactly the kind of question with no general answer. The word 'trailing' says nothing about the threshold at which the floor freezes, nor whether it freezes at all. The only valid answer is the one in the contract you signed, and it is read in a minute.
It depends on the firm, and many measure on equity, so open positions included. The consequence is concrete: a floating loss on a position you fully intend to close can trigger the rule without your balance having moved a cent. It is the third point to check in the contract, after the convention and the moment of measurement.
The Prop Firm screen tracks a challenge by its rules rather than by its figures alone: drawdown, profit target and minimum days are shown with the distance separating you from each. The drawdown convention is chosen there among the three that exist, static, end of day or trailing, and a separate setting says whether the floor starts from the opening balance or from a frozen threshold.
The rules of known offers are pre-filled to save typing, and they all stay editable, because a firm can change a rule without notice. And the screen distinguishes two things many tools confuse: a firm that imposes nothing on a point, and a firm that imposes something whose value is unknown. Showing the second as the first would amount to telling a trader there is no limit when there is one.
To go deeper on this: read the full guide. Every term is gathered in the glossary.