How Prop Firm Drawdown Rules Work
Prop firm drawdown comes in four shapes: static, end-of-day trailing, intraday trailing, and balance-based versus equity-based. Every firm also runs a daily loss limit alongside it. The type matters more than the percentage. A 10% static limit and a 10% trailing limit that counts unrealised losses are not the same rule, and an automated strategy that survives one can fail the other in a single afternoon.
Every figure on this page was read from the firm's own published rules and checked on 16 and 17 September 2026. Where a firm sells several products at different limits, a range is shown rather than a single number.
Two Limits, Not One
Every firm runs two drawdown limits at the same time, and a challenge ends the moment either is hit.
The maximum overall loss is the floor under the whole account. Breach it and the account is finished.
The daily loss limit is a separate floor that resets each day. Breach it and the account is finished too — the fact that you were nowhere near the overall limit is no defence.
Most traders read the overall figure, note that it looks generous, and never work out that the daily loss limit is the one that will actually catch them. For an automated strategy it is nearly always the daily loss limit that bites first.
The Four Drawdown Types
Static
The floor is set once, at the start, from your initial balance. It never moves.
If you start at £10,000 with a 10% maximum loss, the floor is £9,000 for the life of the account. Make £2,000 and the floor is still £9,000 — your buffer has grown to £3,000.
Static is the most forgiving type for any strategy that takes drawdown before it takes profit, because every pound of profit widens the gap between you and failure.
End-of-day trailing drawdown
The floor is recalculated from your highest end-of-day balance, and it only ever rises.
FTMO's 1-Step account works this way. In their own words:
So on a £10,000 account, a peak end-of-day balance of £10,400 moves the floor to £9,400. Your buffer is still £1,000, but it now sits under a higher number. Profit does not build you a cushion — it moves the floor up behind you.
Intraday trailing drawdown
The floor trails your peak equity in real time, including unrealised profit on open positions. A trade that goes 2% in your favour and comes back to break-even can move the floor up and leave it there.
This is the harshest type. None of the six firms covered on our prop firms page was found to use pure intraday equity trailing, but it is common enough elsewhere that it is worth recognising before you buy a challenge.
Which of the six use trailing drawdown rules? FTMO's 1-Step (end-of-day balance), some FundedNext models, Alpha Capital's trailing products (a balance high-water mark), E8 Markets' products that trail closed balance, and Instant Funding's IF Evolve (highest end-of-day balance). Their other products are static. The table below sets out each firm's rules side by side.
Balance-based versus equity-based
This is a separate question from static or trailing, and it is the one that decides whether an automated strategy survives.
Balance-based counts only closed trades. Positions you are still holding do not count against you, however far they have moved against you.
Equity-based counts everything — closed results plus the floating profit and loss on open positions, plus swaps and commissions.
A firm can combine these in either direction, and several do. E8 Markets is the clearest example: its maximum drawdown trails closed balance, which is generous to a strategy holding losing positions, while its daily limit breaches on "equity or balance", which is not. E8's own explainer articles and product pages quote different drawdown percentages and the amount is chosen at checkout, so there is no single E8 number to publish — read the figure on the product you are actually buying.
What Decides It For An Expert Advisor
All six firms we checked count floating losses against the daily limit. That single fact does more to determine whether a bot survives than any headline percentage.
FTMO states it directly:
The baseline is the "account balance at midnight CE(S)T of the previous day."
Now consider what a grid or averaging strategy does. It opens a position. Price moves against it, so it opens another, often larger. It does this several times, and none of those positions is closed until the basket comes good. The account's balance barely moves for days. Its equity falls the whole time.
On a balance-based limit that strategy is invisible until the basket closes. On an equity-based limit it is spending its allowance from the first adverse tick.
This is why "what is the maximum drawdown" is the wrong first question. The right one is: what does this firm measure, and when?
And if the plan is to run the same strategy on more than one account, the drawdown rules are only half the picture. Several firms treat identical trades across accounts as a breach in its own right, and FTMO caps total allocation per trader or strategy. Our guide to copy trading inside a prop firm account sets out which firms permit it and how they detect it.
Three follow-ups worth asking before you pay a challenge fee.
Does the daily limit reset on balance or equity, and at what hour? FTMO uses the balance at midnight CE(S)T. Instant Funding uses "whichever is higher between your Balance and Equity at 17:00 EST". A basket held across that boundary is measured differently by each.
Is a daily breach fatal, or a pause? At The5ers, the Hyper-Growth product has no daily breach at all — instead a 3% pause that closes trades and disables the account until the next day. A pause is survivable; a breach is not, and no comparison table distinguishes them.
Does the firm cap floating loss on a single instrument? Alpha Capital's Max Risk Rule caps floating drawdown on any one asset at 3%, 2% or 1% depending on account size. That is a hard constraint on grid and basket strategies even though neither is named anywhere in the rule.
The Six Firms, By Mechanism
| Firm | Overall drawdown | Daily limit | Floating counts |
|---|---|---|---|
| FTMO | Static on the 2-Step; end-of-day trailing on the 1-Step. 10% of initial capital | 5% (2-Step), 3% (1-Step) | Yes |
| FundedNext | Static or trailing by model, 6–10% | 3–5% | Yes |
| The5ers | Equity-based, 5–10% by product | 5%, or a 3% pause on Hyper-Growth | Yes |
| Alpha Capital | Static, or trailing on a balance high-water mark, 4–10% | 3–5%, on balance or equity whichever is greater | Yes |
| E8 Markets | Trails closed balance, or static by product | 2.5–3%, on equity or balance | Yes, on the daily limit |
| Instant Funding | "Smart" — starts at −10%, steps to −5% of starting balance once a 5% gain is achieved. Challenges are static; IF Evolve trails the highest end-of-day balance | 2–5% | Yes |
Ranges appear where a firm sells several products at different limits. Naming one figure for a firm whose drawdown is chosen at checkout would be wrong. Verified 16–17 September 2026.
A Worked Example
Suppose the account's peak end-of-day balance is £10,350, and its lowest equity, at some later point, is £9,200.
2-Step account — survives
The floor is static at £9,000. Lowest equity £9,200, inside the limit by £200.
1-Step account — breaches
The floor trails the peak end-of-day balance by a fixed £1,000, giving £9,350. Lowest equity £9,200, a breach of £150.
Same figures. One account type survives and the other does not, and the only difference is which drawdown rule applies.
An earlier version of this example used a Perceptrader AI test run on IC Markets' price data. Re-run on FTMO's own data on 2 October 2026, that configuration breached neither limit, so we have replaced it with illustrative figures. Our actual results are in our prop firm EA test results, and how we run the tests is in our testing methodology.
How To Check Your Own Strategy
You need three numbers from a backtest or a live record, and they are not the ones most people quote.
Maximum equity drawdown, not balance drawdown. Most reports give both. The equity figure includes open positions and is the one that matters. If your strategy's equity drawdown exceeds the firm's overall limit at any point in the record, it would have failed.
The worst single day, measured on equity. This is the hard one, because a standard Strategy Tester export gives realised profit and loss only. If your data cannot produce a daily equity series, you cannot answer the daily-limit question — and you should say so rather than assume you passed.
The gap between balance drawdown and equity drawdown. That gap is your floating exposure. The wider it is, the more a grid or averaging mechanism is carrying, and the more an equity-based daily limit will punish it.
Our guide to evaluating EA drawdown risks covers reading those figures, and how grid and martingale strategies behave explains why the gap opens in the first place.
Once you have the figures, the arithmetic is the easy part — and it is the part a single drawdown percentage gets wrong on a trailing limit, as the worked example above shows. Our Prop Firm Drawdown Checker takes the starting balance, lowest equity, highest end-of-day balance and worst single day, tests them against a firm's static or trailing limits, and shows every step. Where the figures cannot answer the question, it says so rather than guessing.
Drawdown Rules, Answered
Does FTMO have trailing drawdown?
On the 1-Step account, yes. The limit is derived from your highest end-of-day balance and is a fixed 10% of the initial simulated balance. It rises with new end-of-day highs and never falls. The 2-Step account uses a static limit set at the start.
What is trailing drawdown at a prop firm?
A maximum loss limit whose floor moves up as the account makes new highs and never moves back down. On FTMO's 1-Step, a £10,000 account with a 10% limit starts with a floor of £9,000, and an end-of-day balance of £10,400 lifts the floor to £9,400. Profit does not widen your buffer under a trailing limit, as it does under a static one.
What is a daily loss limit?
A second floor, separate from the overall drawdown limit, that resets each day. At FTMO it is 5% on the 2-Step and 3% on the 1-Step, measured from the account balance at midnight CE(S)T of the previous day, with floating losses included. Breaching it ends the challenge even when the overall limit is nowhere near.
Which prop firms have static drawdown?
Of the six we checked, FTMO's 2-Step, Alpha Capital's Pro and Swing products, E8's Pro product, and Instant Funding's challenges all use a static limit. Always confirm against the specific product, because several firms sell both types under one brand.
What is balance-based drawdown?
A limit measured on closed trades only. Positions still open do not count against it, however far they have moved against you. It is more forgiving to strategies that hold losing positions — but a firm can use balance-based for its overall limit and equity-based for its daily limit, and several do.
What is the difference between daily and intraday drawdown?
The daily limit is a floor that resets each day, usually calculated from the previous day's closing balance or equity. Intraday drawdown describes how far you fall within a single session. The two interact: a strategy can sit well inside its overall limit and still breach the daily one before the session ends.
Do floating losses count toward the drawdown limit?
At all six firms we checked, floating profit and loss counts toward the daily limit. Whether it counts toward the overall limit varies — E8 Markets, for example, trails its maximum drawdown on closed balance while breaching its daily limit on equity.
Is there a prop firm with no daily drawdown limit?
Among the six, E8's Zero product has no daily limit, and The5ers' Hyper-Growth replaces the daily breach with a 3% pause that disables the account until the next day rather than ending the challenge. Confirm on the product page before buying, because product lineups change.
Does a prop firm require a stop loss?
E8 Markets states it has no stop-loss requirement. The5ers does not require one either, but rules that any stop loss used must be visible in the trading platform — which excludes an EA holding its exit internally, a common design that sales pages rarely mention. FTMO, FundedNext, Alpha Capital and Instant Funding do not address a stop-loss requirement in the rules we read, which is not the same as confirming there is none.
Our position. We have affiliate relationships with five of the six firms named on this page — FTMO, FundedNext, The5ers, E8 Markets and Instant Funding — approved between 19 and 21 September 2026, after this page was first published on 17 September. There are no affiliate links on this page, and nothing here was supplied, reviewed or approved by any of the firms. Alpha Capital Group does not advertise an affiliate programme, and we have no relationship with it.
This page names Perceptrader AI, developed by ValeryTrading, in the note under the worked example. We have an affiliate relationship with ValeryTrading, approved on 17 August 2026, and the FTMO settings file we tested was supplied by ValeryTrading after that relationship began. Our Perceptrader AI review rates it Not Recommended, and there is no affiliate link to it on this page.
Every rule was read from the firm's own website, help centre or terms and is quoted where the wording matters. Prop firm rules change without notice and product lineups change with them. We re-verify this page quarterly and date every change.
Trading carries risk. Nothing on this page is financial advice or a recommendation to use any firm.
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