Glossary · Risk management

Drawdown

The decline of your balance from its highest point to a later low, usually expressed as a percentage of that peak.

By Sky Trade editorial teamUpdated November 5, 2026

Drawdown measures how far you have fallen from your peak. If your balance rose to $1,200 and then dropped to $900, you are in a $300, or 25%, drawdown — even if $900 is still above where you started. The largest such fall in your history is called the maximum drawdown.

Its most important property is asymmetry: recovering takes a larger percentage gain than the loss was. A 10% drawdown needs an 11.1% gain to recover; 25% needs 33.3%; 50% needs 100%. Deep drawdowns are disproportionately hard to climb out of, which is why limiting their depth matters more than squeezing out extra profit.

Drawdowns are also where discipline tends to break. People raise stakes to recover faster, start revenge trading or abandon a plan that was performing within its normal range. Deciding in advance which drawdown triggers a pause and a review takes that choice out of the heat of the moment.

The size of your stakes largely determines how deep drawdowns can get. See risk per trade and drawdown and recovery.

Example

Peak balance $2,000, low $1,500: a 25% drawdown. To get back to $2,000 you need to make $500 on $1,500, a 33.3% gain.

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