Glossary
Drawdown
Risk Management
Drawdown is the peak-to-trough decline in account equity, expressed as a percentage of the previous high.
If an account rises to $12,000 and then falls to $9,600 before making a new high, maximum drawdown is 20%. Recovery is asymmetric: a 20% drawdown needs a 25% gain to get back to the high, a 50% drawdown needs 100%.
Maximum drawdown is a better risk gauge than annual return because it measures the worst experience an account actually had, and it is what prop-firm and fund mandates cap.