Forex drawdown
Family III · Risk
Not to be confused with drawdown, maximum drawdown.
Forex drawdown measures how far an account has fallen from its highest equity value, known as the peak, to a later trough. Because currency pairs are typically traded on margin, a modest adverse move in the exchange rate can produce a large percentage decline in equity. Drawdown is a backward-looking measure of loss already incurred, not a forecast of future loss.
How it is calculated
Drawdown is computed by comparing current equity with the highest equity reached since the account was opened or since the last peak was set. The formula is:
- Drawdown (%) = (Peak equity − Current equity) ÷ Peak equity × 100
Equity, not balance, is the correct input when positions are open, because floating losses reduce equity before any trade is closed. A new peak resets the reference point; drawdown is therefore always measured from the most recent high-water mark.
Worked example
The 15% figure describes the loss relative to the peak, not relative to the initial deposit. If the account later reaches $21,000, the drawdown resets to zero and any subsequent decline is measured from that new peak.
Why it matters in forex
Leverage amplifies drawdown. A position of one standard lot on a major pair controls a notional amount many times the margin deposited, so a small adverse pip move can erase a large share of equity. Drawdown thresholds also appear in risk-disclosure and account-monitoring rules, but the specific limits, calculation methods and consequences vary by broker, by regulator and by account type; they are not universal. Traders commonly track drawdown alongside margin call and stop-out levels, since a deep drawdown can trigger either.
Often confused with
- drawdown
- Drawdown is the general term for any decline from a peak to a trough, while forex drawdown specifies that the equity being measured belongs to a currency-trading account; the visible sign is the presence of currency positions or pip-based losses in the calculation.
- maximum drawdown
- Maximum drawdown is the single largest peak-to-trough decline recorded over a defined period, whereas forex drawdown can refer to any current or historical decline; the visible sign is that maximum drawdown is reported as one worst-case figure rather than a moving value.