For example if a forex trading system states that it is 80% profitable, it translates to a 20% drawdown that the trading system will incur. Drawdown can also be illustrated differently. Which when translated to layman’s term is nothing but the fact that the account can lose as much as 50% of its value. The simplest way to explain drawdown is when an account with equity of $1000 takes a loss of $500. The chart below shows an 11% drawdown, represented in Percentages and Pips.įor traders, drawdown is used in reference to how well a trading system or strategy works, whereas for investors, drawdown is used to learn more about the maximum risk that a money manager or a fund can take thus helping them to make a more informed decision. Drawdown measures the largest loss an account takes, therefore traders and investors should both pay attention to drawdown as it gives an overview on the loss taken by the account.ĭrawdown can be represented in many ways Percentages, Pips or in profits. when your equity is losing more than your balance) it is referred to as a drawdown. When the equity balance drops below the account balance ( i.e. As one might know, the equity balance changes based on the open position’s P/L. What Is Drawdown in Forex?ĭrawdown in forex is the difference between the account balance and the equity or is referred to as the peak to trough difference in equity.

Explanation of forex drawdown, Forex drawdown meaning.

Drawdown in forex