After a loss of d, the gain needed to get back to where you started is d ÷ (1 − d), because the recovery is earned on a smaller balance than the loss was taken from. A 10% loss leaves 90% of the account, and 10 ÷ 90 is 11.1%. The gap grows faster than the loss: 20% needs 25% back, and 50% needs 100%.
On a prop account the percentage is only half the story. The profit target is fixed in dollars from the starting balance, and the loss limits sit at fixed or trailing floors, so a drawdown also shrinks the room you have left to trade with. This post works through the formula, then what it means under the static loss limits on CFDs and the trailing ones on futures.
Why does a loss need a bigger gain to recover?
Because the two percentages are taken from different bases. A $100,000 account that loses 10% is down $10,000 and holds $90,000. Getting the $10,000 back means making $10,000 on $90,000, which is 11.1% of what is left. The dollars are the same; the base is smaller.
The same arithmetic explains why small drawdowns barely matter in this respect and large ones matter a great deal. A 2% loss needs 2.04% back, almost the same number. A 50% loss needs the remaining half to double.
What is the drawdown recovery formula?
If the account falls by a fraction d and then grows by a fraction g, it is back to its start when (1 − d) × (1 + g) = 1. Solve for g:
Recovery gain g = d ÷ (1 − d)
- A 2% drawdown needs 2.04%.
- A 5% drawdown needs 5.26%.
- A 7.5% drawdown needs 8.11%.
- A 10% drawdown needs 11.11%.
- A 20% drawdown needs 25%.
- A 25% drawdown needs 33.3%.
- A 33.3% drawdown needs 50%.
- A 50% drawdown needs 100%.
The drawdown calculator runs the formula for any figure, and shows the room left above a loss limit at the same time.
What does a drawdown cost on a prop evaluation?
On an evaluation the target does not move when the balance does. Take a $100K Edge 1 Step: the profit target is $10,000, so the stage passes at $110,000, and the Max Loss is $7,500, static, so the floor is $92,500 for the life of the account.
- On day one the target is $10,000 away and the floor is $7,500 away. The distance to the target is 1.33 times the room above the floor.
- After a 5% drawdown to $95,000, the target is $15,000 away, which is 15.8% of the balance, and the floor is $2,500 away. The distance to the target is now six times the room.
The recovery formula says a 5% loss needs 5.26% to get back to the start. The evaluation needs 15.8% from here to pass, with a third of the original room to do it in. That is the real cost of a drawdown on an evaluation: not the percentage, but the ratio of distance to room.
It changes position sizing too. At $1,000 a trade, 1% of the starting balance, $2,500 of room holds two full losses, and a third would breach. At $500 a trade it holds four, and the fifth reaches the floor. Size against the room you have, not the account you started with.
How do the daily and maximum limits interact in a drawdown?
On CFD accounts there are two floors, and both count open losses. The Max Daily Loss is measured from each day's opening balance, which is the previous day's closing balance at 17:00 New York, so it starts again every day. The Max Loss does not.
On the $100K Edge 1 Step the daily limit is $4,000. After a $5,000 drawdown, the next day's daily floor sits $4,000 below the opening balance of $95,000, at $91,000, but the Max Loss floor at $92,500 is closer. In a drawdown the Max Loss becomes the limit that binds first, even though the daily number looks bigger. Watch the one that is nearer in dollars, not the one with the larger percentage.
Why does recovery feel slower when you risk a percentage of the balance?
One way to size is as a fixed share of the current balance rather than a fixed dollar amount. That choice cushions the way down and slows the way back up, by the same mechanism as the recovery formula.
Ten losses of 1% each, taken from the current balance every time, leave a $100,000 account at $90,438 rather than $90,000, because each loss is a little smaller than the last. But the winners shrink too: at $90,438, a 1% risk is about $904, so a 2R winner pays about $1,809 rather than $2,000. Neither approach is free. A fixed share of the balance loses less in a streak and climbs back more slowly; a fixed dollar amount climbs back faster and uses up room faster.
Static or trailing: how does the floor move while you recover?
Whether a recovery buys back room depends on how the loss limit is measured. The difference is covered in general in static and trailing drawdown; here is how it works on each WhitePips line.
CFDs: static on every plan. The Max Loss floor is fixed below the starting balance and never moves, up or down. Every dollar recovered is a dollar of room back, and every dollar above the starting balance is room added. On a $50K Edge 1 Step the limit is $3,750, so the floor is $46,250 for the life of the account, however far the balance rises first.
Futures One Step: end-of-day trailing. The floor moves only at the session close, from your closing balance, so profit given back during the day does not raise it. On a $50K One Step the Maximum Loss Limit is $2,000, so the floor starts at $48,000. End Monday at $51,000 and Tuesday's floor is $49,000. If Tuesday then closes at $50,000, the account is back at its starting balance but has only $1,000 of room, not $2,000. Recovering to $51,000 restores the $2,000; it does not add to it.
The floor locks once it reaches the starting balance. The first day that ends at $52,000 or more locks it at $50,000 for good, and from then on profit above $52,000 is room added, as on a static account. After that a withdrawal takes cushion away, so leave some profit on the account.
Futures Instant: intraday trailing. The floor follows your highest equity during the session, open profit included. On a $50K Instant account with a $2,500 limit, a trade that runs to +$1,500 and then closes flat raises the floor to $49,000. The balance has not moved, but $1,500 of room has gone. On a One Step account the same day leaves the floor where it was. The Instant floor locks at the starting balance in the same way, once equity reaches $52,500.
Under a static floor a recovery earns room back. Under a trailing floor it only restores what the last high allowed, until the floor locks.
On futures the Daily Loss Limit is soft: reaching it closes your positions and stops trading for the rest of the day, and the account stays open. It still uses up room under the trailing floor. On a $50K One Step the daily limit is $1,250, so one day stopped at the limit, from a fresh start, leaves $750 above the floor.
How should you trade during a drawdown?
- Re-size from the room, not the balance. Work out the distance to the nearer floor in dollars, decide how many full losses you want that room to hold, and divide.
- Do not try to win it back in one trade. On CFD accounts, materially increasing position size after a realised loss to recover it is prohibited as loss-recovery over-sizing, in section 15.1 of the trading rules.
- Use the time. CFD evaluations have unlimited trading days and the futures evaluation has no time limit, so a recovery can take as long as it takes. On futures, trade at least once every 15 days, because 15 days without trading deactivates the account.
- Know what a reset is for. A Challenge Reset on a live CFD evaluation is free, but only when the account has no open positions and is at break-even or better. It is not a way out of a drawdown.
- Watch the floor, not the profit. Under a trailing limit, write the current floor down at the start of each session; it moves at the close on One Step and during the day on Instant.
Trading leveraged products can lose money. The figures here illustrate the arithmetic; the limits that bind your account are the ones printed on your plan.