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Understanding the Different Types of Drawdowns in Prop Trading

Understanding a prop firm’s drawdown rules is crucial, particularly when selecting the most suitable prop firm for your needs. Drawdowns, in this context, represent the decline from a trading account’s peak to its lowest equity or balance during a trading period. Various factors, such as market conditions, trading strategies, and risk management, can contribute to drawdowns.

In this article, we will dive deeper into the different types of drawdowns that are commonly seen in prop trading. By the end, you will have a better understanding of each drawdown type and how they can impact your trading performance.

Prop Firm Drawdown Types and Rules 

The common drawdown types used in prop trading are the static or balance-based drawdown; and the trailing or equity-based drawdown. Each drawdown type has specific rules that traders must follow to pass trading assessments and maintain funded accounts. Let’s review this below:

Balance-Based or Static Drawdown

The static drawdown, also known as the absolute drawdown type, is based on the trader’s initial account balance. This means that the maximum drawdown allowed is calculated as a percentage of the starting capital. If a prop firm’s drawdown rule states a 10% static drawdown, it means a trader cannot lose more than 10% of their initial account balance at any given time.

Equity-Based or Trailing Drawdown

The trailing drawdown, also known as relative drawdown is based on the trader’s current equity level. This means that the maximum drawdown allowed is calculated as a percentage of the current account equity. As traders make profits and their account balance increases, the maximum drawdown limit also changes. Therefore, a trader must continuously monitor their equity level to ensure they stay within the allowed drawdown limit.

How to Calculate Drawdowns in Prop Trading

Let’s break down how we calculate static and trailing drawdowns:

Static Drawdowns Calculation

The static drawdown is calculated based on the initial balance of the trading account. Here’s how you can calculate it:

Static Drawdown = (Initial Account Balance – Lowest Account Balance) / Initial Account Balance x 100%

If a trader starts with an account balance of $10,000 and the account balance drops to $8,500, the static drawdown would be calculated as follows: 

Static Drawdown = ($10,000-$8,500) / $10,000 x 100% = 15%

If the prop firm only allows a maximum static drawdown of 10%, this trader would have exceeded the limit and could be disqualified from their challenge or lose their funded account.

Trailing Drawdowns Calculation:

The trailing drawdown adjusts with the account’s equity. It recalculates the maximum drawdown over a certain period as the account balance changes.

Trailing Drawdown = (Highest Account Balance – Current Account Balance) / Highest Account Balance x 100%

Let’s say a  trader’s account reaches a peak balance of $12,000, but later falls to $10,800. The drawdown calculation for this is as follows:

Trailing Drawdown = ($12,000 – $10,800) / $12,000 x 100% = 10%

If the prop firm’s rule is a maximum trailing drawdown of 10%, the trader is at the limit, and any further loss could breach the drawdown rules, risking disqualification or loss of their funded account.

*Note: In most cases, once the drawdown limit is reached, all trading activities will pause, resulting in the trader’s disqualification.

Which is Better: Static or Trailing Drawdown?

The choice between a static or trailing drawdown type depends largely on a trader’s strategy and trading style. Both options have their advantages and disadvantages. To help you make smarter decisions when selecting the right prop firm to fit your strategy, here’s an overview:

Drawdown TypeProsCons
Static DrawdownProvides a clear understanding of the maximum loss based on the initial account balance.Encourages cautious trading behaviour to avoid exceeding the set drawdown limit.This might limit trading strategies as traders aim to stay below the drawdown limit.Does not adjust based on account growth, potentially hindering opportunities for larger trades.
Trailing DrawdownAllows for more flexibility in trading as the drawdown limit adjusts with increasing equity.Can be beneficial during profitable trades as it enables larger stakes.Requires continuous monitoring of equity level to ensure compliance with the changing drawdown limit.Risky during market volatility as a significant decrease in equity (more than the allowed limit)  will result in breaching the drawdown rules.

What Drawdown Type Does FXIFY Offer?

At FXIFY, we understand that every trader has a unique style and strategy. That’s why we offer both trailing and static-based drawdown types to cater to our clients’ needs. Our One Phase program offers a trailing drawdown type, while the Two Phase and Three Phase program provides a static-based drawdown.  Traders at FXIFY have the option to choose and tailor their program based on their preferred drawdown type. This allows for more flexibility and customisation in their trading experience.  So whether you’re a cautious trader who wants to limit potential losses or an aggressive trader looking for opportunities to increase stakes, FXIFY has got you covered.

Learn more about our funded trading programs at FXIFY.


Choosing the right prop firm and drawdown type is crucial for any trader’s success. Traders must understand the pros and cons of each drawdown type and determine which one aligns with their trading style and goals.  FXIFY offers both trailing and static-based drawdown types, providing traders with the flexibility to choose the one that suits them best.

Get Funded Faster With FXIFY: Introducing Trading Central

Being a forex trader, you understand the challenges that come with prop trading. Even experienced forex traders encounter obstacles and struggle to make consistent gains. At FXIFY, we are dedicated to supporting our traders and equipping them with the necessary tools for success. That’s why we’ve partnered with Trading Central, one of the leading fintech organisations in the industry.

Through this partnership, we can offer our forex traders access to a wide range of powerful trading tools, comprehensive research, and advanced technical analysis to improve their chances of success. This article aims to cover everything you need to know about Trading Central and how their trading tools can boost your trading game. That said, let’s get started!

What is Trading Central?

Trading Central is a globally renowned fintech organisation that provides top-notch trading signals to financial institutions, traders, and investors. Founded in 1999, Trading Central has built a strong reputation for empowering traders and helping them make better-informed trading decisions. Their services are now available through FXIFY for free, allowing our traders to benefit from their expertise and insights.

With Trading Central, you can access some of the finest trading tools, including Technical Views, Featured Ideas, and Economic Calendar. Let’s explore more about these tools below. 

Technical Views

Unlock more trading opportunities with Trading Central’s Technical Views tool. This tool enhances clarity with market trends. It showcases timely technical analysis across hundreds of forex currency pairs and aids traders in making informed trading decisions. Some of the features and benefits of this tool include:

  • Actionable insights by senior analysts and AI: Benefit from clear and actionable technical analysis from senior analysts with decades of expertise and the power of AI.
  • Clear pivot points and price targets:  Easily identify key levels of support and resistance, as well as potential price targets for your trades.
  • Personalised Trading Insights: Tailor the tool to suit your trading style and preferences. Filter by timeframes, trends, and more.

Featured Ideas

Explore featured forex trade ideas and trading signals from Trading Central. Tailor the trading insights to suit your preferences and trading style, allowing them to seamlessly align with your strategies. This trading tool is perfect for traders seeking to enhance their forex trading strategies. It offers technical analysis and actionable trading insights.  Here are some of the key features and benefits of this tool:

  • Real-time market insights:  With regularly updated forex trade ideas, technical analysis, and trading opportunities, traders can stay ahead of dynamic market movements in real-time.
  • Interactive Learning: Navigate through different trading instruments and delve deeper into any forex trade ideas. Understand why an idea was identified, anticipate price action, and engage with an interactive chart that tracks the idea in real-time.
  • Easy-to-understand technical analysis: Hover over any pattern name to gain insights into its formation, implications, and essential facts that could aid in your decision-making process.

Economic Calendar

Stay ahead of key market events, news, and economic insights. The Trading Central Economic Calendar tool is essential for traders who rely on fundamental analysis to make trading decisions. Here’s what you can expect from this tool:

  • Customizable filters: Filter through economic events by country, impact level, and event type to focus on the most relevant news for your trading strategy.
  • Real-time event tracking: Stay updated with global economic news as it happens. Set up personalised alerts on your calendar and track events across hundreds of your favourite FX pairs.
  • Historical data analysis: Dive deep into historical price performances. Analyse movements down to five-minute intervals following every NFP announcement or other economic news for the past 5 years.
  • Impact and volatility analysis: Understand how different economic news impacts FX pairs with Trading Central’s powerful impact and volatility analysis tools. Assess the potential impact on your trades and adjust your strategies accordingly.

Access Trading Central tools for free with FXIFY by simply signing up or logging in to your trader dashboard.

Begin Your Funded Trading Journey With FXIFY

Elevate your forex trading strategies with Trading Central tools – free with FXIFY. Choose between our One Phase, Two Phase, or Three Phase evaluation – pass, and get funded up to $400,000 in forex trading capital. Benefit from up to 90% performance split on your trading gains in your funded stage and request your first payout on demand with FXIFY.

5 Things Every Forex Trader Should Know Before Choosing a Forex Prop Firm

Prop trading, commonly known as funded trading, has become increasingly popular and has transformed the retail trading landscape. It empowers skilled forex traders with a unique opportunity to acquire substantial trading capital without putting their own at risk. However, with so many forex prop firms available online, choosing the perfect match can sometimes be overwhelming. In this article, we will discuss the key considerations to consider when selecting a forex prop firm to partner with. This will help you make well-informed decisions for your funded trading journey.

What is a Funded Account?

If you’re unsure about the concept of a funded account, let’s break it down. A funded account essentially grants forex traders access to substantial trading capital. Funded accounts from a prop firm vary from a few thousand to hundreds of thousands of dollars. In exchange for this trading capital, the trader agrees to share a portion of their profits with the firm. In essence, this is a win-win situation where both parties benefit from successful trading.

Key Factors to Consider When Choosing a Forex Funding Program

When choosing a forex prop firm, there are several key considerations to remember.  Consider these factors when evaluating forex funding programs to make the best decision for your trading needs. Here’s what you need to know:

1. Spreads & Commissions

One of the most crucial factors to consider when trading is the spreads and commission charges. Inflated spreads and commissions can significantly impact overall profitability and the chances of passing assessments. Some forex prop firms may promise tight spreads or no commission, but the reality can be different. These prop firms might inflate spreads, hiking trading costs and increasing the risk of premature stop-outs. Additionally, it is important to carefully evaluate the commissions you are being charged for each trade. High commissions and excessive trading costs can be detrimental to your forex trading success.

Learn how spreads and trading commissions can affect your prop trading success.

2. Trading Conditions

When selecting a forex prop firm, it is crucial to carefully consider the trading conditions that align with your trading style and preferences. Opting for a provider that offers the best trading conditions can greatly contribute to your funded trading success. On the other hand, poor trading conditions can be detrimental and act as a significant obstacle to achieving your trading goals. FXIFY stands out in this regard, offering its funded forex traders unmatched trading conditions and execution, including Raw Spreads from as low as 0.0 and some of the lowest trading costs in the industry.

3. Payout Speed

The payout speed is often seen as a crucial factor when deciding on a forex prop firm. Traders want to receive their payouts as quickly and efficiently as possible to keep their trading performance consistent.  That is why FXIFY offers the fastest prop firm payouts in the industry. Our forex traders benefit from instant payouts on demand for their first withdrawal – available as soon as 24 hours after the first profitable trade.

4. Profit Split

As a funded forex trader, you must be paid what you deserve for your trading efforts. The profit split ratio between the trader and the prop firm is a significant aspect to consider when selecting a provider. At FXIFY, our funded forex traders receive up to 90% Performance Split* when trading with the firm’s capital from day 1 in their funded stage. This makes our payout structure one of the most lucrative in the industry.

5. Drawdown Rules

Different firms may have varying drawdown rules for their forex funding programs. For example, some may enforce a maximum drawdown of 5%, while others may set it at 10%. It is crucial for prop traders to carefully consider these rules when selecting a forex prop firm.

Overlooking this important factor can result in careless or non-compliant risk management practices, leading to breaches of drawdown rules and ultimately failing the trading challenge. To ensure a smoother funded trading experience, it is essential to choose a forex prop firm that aligns with both your prop trading and risk management strategies.

Learn how to calculate drawdowns in prop trading.

Why Forex Traders Prefer FXIFY

At FXIFY, we support our prop traders by offering the flexibility to tailor their accounts and price feed according to their trading approach. Traders can choose between stringent and less stringent assessment types, allowing them to select the best fit for their trading style. Here are some of the reasons why we’re leading the prop firm industry:

  • Instant Payouts On Demand*
  • 90% Performance Split*
  • Up to $400,000 Starting Capital
  • Raw Spreads Starting at 0.0 – including major FX pairs and Gold
  • Backed by a Reputable Broker – FXPIG

Start Your Funded Trading Journey With FXIFY

Realise your forex trading dreams with an industry-leading prop firm, designed by traders for traders. Choose your funded trading program: One-Phase, Two-Phase, or Three-Phase – trade, and get funded up to $400,000 as you progress through the trading challenge. Request your first payout on demand during your funded stage – 24 hours after your first profitable trade, and keep up to 90%* of your trading gains.

*90% Performance Split/Profit Split offered as an add-on with an additional fee and available upon checkout
*Instant Payouts On Demand applies to your first payout request only, available 24 hours after your first profitable trade in your funded account.

Why Spreads and Commissions Matter in Forex Trading

Forex trading is a highly competitive market, with millions of traders around the world competing for profits.  To be successful in this industry, traders must understand how trading costs like spreads and trading commissions work and how they can have a significant impact on trading. Having a clear understanding of how these trading costs operate will help you in choosing the right forex prop firm or a broker that aligns with your trading strategies.

Key Takeaways:

  • Spreads and trading commissions are primary trading costs that every forex trader should understand to optimise their trading strategies.
  • Forex brokers charge trading commissions in two ways: ‘per lot per side’ or ‘per lot round turn’.
  • Inflated spreads and trading commissions can erode profits, particularly for active forex traders.
  • Being mindful of trading costs enhances a trader’s performance.

What are Spreads in Forex Trading?

A spread is essentially the difference between the bid (buying) and ask (selling) price of a currency pair. It is measured in pips, which is the smallest unit of a currency’s value. Take, for instance – the EUR/USD currency pair with a spread of 2 pips. This implies that if the buying price stands at 1.3000, the selling price will be 1.2998. This is the ‘cost’ of trading with forex brokers, and it can vary based on market conditions and liquidity.

What are Trading Commissions?

Trading commissions are fees forex brokers charge for executing trades on your behalf. They can be charged in two ways: ‘per lot per side’ or ‘per lot round turn’. The former charges a trading commission for each side of the trade, whereas the latter charges one flat fee for both opening and closing positions – they’re both technically the same thing.  Let’s take an example: if a forex broker charges $2 per lot per side commission, it is equivalent to paying $4 per lot round-turn.

The Impact of Inflated Spreads and Commissions

Both spreads and commissions are trading costs that can eat into your profits without you even realising, especially if you’re an active forex trader.

Picture this: Consider every trade you take charges you trading commissions of $8 per lot round-turn with an average spread of 0.9 pips.

Now, let’s break down the calculation:

  • Cost Per Trade = Spreads + Commissions
  • 0.9 Pips Spread =  $9 Per Standard Lot
  • Commissions Per Lot Round-Turn: $8
  • Total Costs Per Standard Lot: $17

Imagine executing 10 trades with this price feed – that’ll cost you $170! That’s a significant amount that can easily eat away at your profits if your trading strategy is not well-capitalised.

The Impact on Forex Prop Traders

The issue with spreads and trading commissions becomes even more crucial for forex prop traders. These are traders who trade with the capital provided by a funding provider, such as FXIFY. In most cases, these forex prop firms require their traders to pass a trading assessment and prove their skills before they can access the firm’s trading capital. One of the main criteria for passing these assessments is maintaining a positive profit and loss (P&L) with minimal drawdowns. Hence, when spreads and trading commissions are inflated, it becomes considerably more challenging for forex prop traders to succeed in their evaluation stages, ultimately failing.

Learn how to calculate drawdowns in prop trading.

How FXIFY Empowers Forex Traders

At FXIFY, we understand the importance of low trading costs for traders, especially prop traders. As one of the select few prop firms backed by a broker with over a decade of industry expertise, we’re uniquely positioned to deliver unmatched trading conditions to our clients, which include:

  • 0.0 spreads* on major FX pairs and Gold using Raw Spreads.
  • 0  trading commissions* on FX, Gold, Metals, and Indices.
  • Tailored account types and price feeds to match your trading styles.
  • True market execution, ensuring your trades are executed at lightning speeds of <10ms.

See our live forex spreads in action!

Join a Team of Forex Prop Traders at FXIFY

Start your funded trading journey with an industry-leading prop firm. Choose your funding program: One-Phase, Two-Phase, or Three-Phase – and tailor your program with our price feed options and account upgrades to match your trading strategy. Prove your skills, pass the assessment, and secure funding up to $400,000 in trading capital with a potential to earn up to 90% Performance Split* on your trading gains.

*Not all forex pairs have spreads as low as 0.0 pips
*Standardised commissions of 6$/lot round-turn apply on the Raw Spreads account type
*0 commissions on FX, Gold, Metals, and Indices apply for All-in account type only.
*Standardised commissions apply on Stocks and Crypto CFDs
*All trading instruments offered by FXIFY are traded as CFDs

Pips in Forex Trading – Everything You Need to Know

For beginners, forex trading may seem overwhelming. To grasp this seemingly complex concept, one must first familiarise oneself with numerous terms and nuances. Among these is the term ‘pip’.

But what exactly is a pip in forex trading? And how do you calculate its value? In this article, we’ll break down everything you need to know about pips in forex trading. So, let’s start from the basics!

What is a Pip?

A pip, short for ‘percentage in point’ or ‘price interest point’, is a unit of measurement used to track price movements in the foreign exchange market. It represents the smallest change in value of an exchange rate and is usually measured up to four decimal places. For example, if the EUR/USD currency pair moves from 1.05500 to 1.05550, that is a change of 5 pips.

Certain currency pairs like USD/JPY have a third decimal place, so the pip in this instance is measured up to two decimal places. This means that if the exchange rate changes from 109.500 to 109.550, that is also a change of 5 pips.

Forex traders often use the term ‘pip’ when referring to price changes or spreads of a currency pair. Let’s consider a EUR/USD trade scenario:

  • Current market price of EUR/USD: 1.0550
  • ‘Ask’ price (buy): 1.0552
  • ‘Bid’ price (sell): 1.0548

In this case, there is a spread of 4 pips between the bid and ask price. This means that the price needs to move at least 4 pips in your favour before you can make a profit.

What is a Pipette?

A pipette, also known as a fractional pip or point, is the fifth decimal place in a currency pair’s exchange rate. It represents a tenth of a pip and is used when measuring very small price changes.

For example, if the EUR/USD exchange rate moves from 1.05500 to 1.05505, that is a change of 0.5 pips or 5 pipettes.

How to Calculate the Value of a Pip

The value of a pip is determined by the size of your trade and the currency pair you are trading. In general, the base currency, which is the first currency listed in a currency pair, will determine the pip value.

To calculate the value of a pip in your account’s currency, you can use the following formula:

Pip value = (0.0001 / Exchange rate) x Position size

Let’s use EUR/USD as an example again. If we have a position size of 100,000 units and the exchange rate is currently at 1.0550, the pip value would be calculated as follows:

(0.0001 / 1.0550) x 100,000 = $9.48 per pip

Keep in mind that this is the value of a single pip for a standard lot size of 100,000 units. If you are trading a different lot size, you will need to adjust your calculations accordingly.  Some trading platforms also have pip calculators that can do this calculation for you.

How to Calculate Lot Size Based on Pip Value

Now that we understand how to calculate pip value, let’s see how we can use it to determine our lot size based on a given stop loss (SL) in pips.  This will help us manage our risk and determine the appropriate position size for a trade.

The formula for this is:

Lot Size = Risk in $ / Pip Value per standard lot / SL size in pips

Let’s say we have a trading account with $10,000 and we are willing to risk 2% of our account on a trade. Our risk would be $200. If we are trading EUR/USD and our SL is set at 20 pips, the lot size would be calculated as follows:

$200 / $9.48 per pip / 20 pips = 1.05 standard lots

This is just one way to manage risk and determine lot size.  There are other methods and strategies that traders use, but understanding the value of a pip is an important aspect of risk management in forex trading.

Become a Forex Funded Trader With FXIFY

At FXIFY, we cater to diverse trading styles, strategies, and experience levels. Tailor your program to your trading style and choose between our One Phase, Two Phase, or Three Phase evaluation. Prove your skills, pass, and get funded up to $400,000 in forex trading capital with a chance to earn up to 90% in Performance Split and your first payout on demand.

We’re bringing the best and brightest traders together.
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