Maximum Drawdown (MDD) Explained

The Maximum Drawdown (MDD) is the total amount your Kraken Prop account can lose from the starting balance over the entire life of the account. Unlike the MDL, which resets daily, the MDD is a cumulative limit that applies from the moment your account is opened until it is closed.

Each plan has a defined MDD, which sets a floor for your account equity. If your equity drops to or below the Drawdown limit shown in your Portfolio widget, your account is breached.

For example, if you have a $10,000 account with a Drawdown limit of $9,200, your equity can never fall below $9,200 at any point during the life of the account.

Depending on your plan type, the MDD may be calculated in one of two ways:

Static MDD: The drawdown limit is fixed at a set level below your starting balance. It does not change regardless of how much profit you make. For example, if your starting balance is $10,000 and the static MDD is $800, your Drawdown limit is always $9,200.

Trailing MDD: The drawdown limit moves upward as your account equity increases, but it never moves back down. For example, if your starting balance is $10,000 with a trailing MDD of $800, your initial Drawdown limit is $9,200. If your equity rises to $10,500, the Drawdown limit moves up to $9,700. If your equity then drops back to $10,000, the Drawdown limit stays at $9,700.

The type of MDD for your plan is shown on the plan selection screen at the time of purchase.

The same factors that count toward MDL also count toward MDD:

  • Realized losses from closed trades
  • Unrealized losses from open positions
  • Commission fees
  • Margin funding fees

The breach process is the same as for MDL:

  1. All open positions are closed immediately.
  2. All pending orders are cancelled.
  3. Trading is disabled.
  4. The account status is set to Closed.
  5. You receive a notification with the breach details.

For more details, see What Happens When Your Account is Breached.

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