Drawdown: meaning in forex and gold trading
Drawdown is the fall in account value from a peak to a later low, usually shown as a percentage.
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Drawdown: Drawdown is the fall in account value from a peak to a later low, usually shown as a percentage.
Measuring drawdown
If an account grows to £12,000 and then falls to £10,800 before making a new high, the drawdown is £1,200 or 10%. Maximum drawdown is the largest such fall over a period. It tells you how painful a strategy has been, not just how profitable.
Why recovery is harder than the loss
Losses and gains are not symmetrical. A 10% drawdown needs an 11.1% gain to recover, 25% needs 33.3% and 50% needs 100%. That maths is why keeping risk per trade small matters so much, and why risk of ruin rises quickly with size.
Worked example
Risking 2% per trade, a run of eight losses takes a £5,000 account to about £4,254, a 14.9% drawdown. Risking 5% per trade, the same run leaves about £3,317, a 33.7% drawdown that needs a 50.7% gain to recover.
Common mistakes
- Judging a strategy only on total return.
- Increasing size to win back a drawdown quickly.
If you follow trade signals, for example the gold signals or EUR/USD signals, understanding this term helps you size and manage each trade yourself. The free Forexuro Telegram channel shares daily market updates where these ideas are used in practice.
Related terms
Tools and guides
Frequently asked questions
What is a normal drawdown?
It depends on the strategy and risk per trade. Losing streaks happen in any method, so plan for them.
How much gain recovers a 20% drawdown?
25%, because the gain is earned on a smaller balance.
Education only, not financial advice. Trading forex, gold and CFDs carries a high risk of losing money, and leverage magnifies both gains and losses. Past performance is not a reliable guide to future results. Read our risk disclosure.