The difference between static drawdown and trailing drawdown is simple. Static drawdown stays in one place. It doesn’t change, even if you make money. Trailing drawdown moves up as you make profits. It follows your account and changes based on how well you do.
What Is a Drawdown in Trading?
Drawdown means how much your account goes down from its highest point. If you start with $100 and lose $10, your drawdown is $10 or 10%. This helps you know how risky your trading is. It also helps you see how much you could lose.
Traders use drawdowns to manage risk. It tells them when to stop or change their plan.
There are two types of drawdowns: static and trailing.
What Is Static Drawdown?
Static drawdown is fixed. It doesn’t move. Let’s say you start with $100,000. Your drawdown limit is $90,000. This means you can’t go below $90,000. Even if you make money and grow your account to $120,000, your drawdown is still $90,000.
This gives you space to take more risks. It helps if you make money early. You have more room to trade without breaking the rules.
Example: You start with $100,000. You make $10,000. Your new balance is $110,000. You lose $15,000. Now your balance is $95,000. You are still safe because $95,000 is above your static drawdown limit of $90,000.
What Is Trailing Drawdown?
Trailing drawdown moves as you make money. It follows your profits. This makes it harder to keep trading when you are doing well. The drawdown level moves up when your account hits a new high.
Let’s say your starting account is $100,000. Your trailing drawdown is set at $10,000. That means if your account reaches $105,000, your drawdown level moves up to $95,000. If you then lose $6,000, your balance is now $99,000, and you’re still safe. But if you lose more, you might hit the limit and fail the rules.
Example:
Start: $100,000
High Point: $110,000
Drawdown moves to $100,000
Now your lowest point is no longer $90,000. It moves with your gains.
Static vs Trailing: The Big Picture
Let’s look at the key points of static drawdown vs. trailing drawdown:
- Static stays the same. Trailing moves up.
- Static is based on your starting balance. Trailing is based on your highest balance.
- Static gives more room when you make money early. Trailing gets harder as you earn more.
- Static is better for swing trading. Trailing fits well with scalping or short trades.
Both types are used in trading challenges and prop firms. You must understand which one you are working with so you don’t break the rules.
Pros and Cons of Static Drawdown
| Drawdown Type | Pros | Cons |
|---|---|---|
| Static Drawdown | Easy to understand. | You might take too much risk early. |
| Doesn’t get harder as you make money | Doesn’t adjust with your account performance. | |
| Good for holding trades longer. | ||
| Trailing Drawdown | Keeps risk under control. | Can stop you out fast after profits. |
| Grows with your account. | Harder for long trades or high drawdown strategies. | |
| Makes you protect your profits. | ||
When to Use Trailing or Static Drawdown
You should pick your drawdown type based on your goals and how you trade.
Use Static Drawdown if:
- You like holding trades longer
- You expect to make profits early
- You need more space for your trades
- You are trading slowly and carefully
Example: Alex is a swing trader. He holds trades for days. He chooses static drawdown. This gives him space to hold trades without the rules getting tighter.
Use Trailing Drawdown if:
- You scalp or trade fast
- You want to lock in gains
- You want tight risk control
- You are trading with small targets and quick stops
Example: Lina is a scalper. She takes 10 trades a day. She chooses trailing drawdown. This helps her stay careful and protect her gains.
Conclusion
Understanding the difference between static drawdown and trailing drawdown helps traders stay safe. Static drawdown is easier to manage if you grow your account early. Trailing drawdown keeps you sharp and careful every step of the way. When you know which one fits your style, you can trade smarter and with more confidence.
Choosing the right broker also helps. Defcofx is a trusted forex broker that supports both trading styles. We offer up to 1:2000 leverage, a 40% welcome bonus for new traders who deposit at least $1000, and no hidden fees or swaps. With low spreads from 0.3 pips and fast support every day of the week. At Defcofx, we make it easier for traders to stay focused on their strategy and long-term success.
FAQ
1. What is the main difference between static and trailing drawdown?
Static drawdown stays fixed, while trailing drawdown moves up as your account balance grows.
2. Is static drawdown better for beginners?
Yes, because it gives more room and is easier to understand. It does not get stricter as you trade.
3. Can I use both types in one account?
Usually, you use one type per trading challenge or firm. Always check the rules before trading.
4. Why is trailing drawdown harder?
It moves with your profits. If you make money and then lose it, you might hit the new limit faster.
5. Does Defcofx support both drawdown types?
Defcofx gives traders the tools and freedom to use many strategies. They help traders with fast platforms, big leverage, and strong support so you can follow your own trading plan.
Keep Advancing Your Forex Skills with Defcofx
Explore more valuable forex insights by staying connected with Defcofx. Begin with these carefully selected articles to enhance your trading strategy.