Maximum Drawdown (MDD) Explained

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.