Forex Drawdown: Equity Calculation and Recovery

Forex drawdown measures how far an account has fallen from an earlier peak. To interpret a percentage, first identify the curve, period and observation frequency. A 20% equity drawdown and a 20% loss on one trade describe different things. This guide calculates account drawdown from a transparent example, then shows what to check in a trading report.

Start with equity, not just closed trades

Balance excludes the current result of open positions. Equity includes their valuation, so losses can appear in equity before positions close. Platform definitions can also include credit, commissions and blocked amounts; check the official MetaTrader 5 account-field definitions rather than assuming every display uses a simple balance-plus-profit formula.

A losing open trade contributes to the account's valuation, but its loss is measured from its own entry. Account drawdown compares the whole account with an earlier account peak. Other positions, realised results and charges affect that comparison. See the balance versus equity ledger for an example of the two curves diverging.

Calculate peak-to-trough equity drawdown

Use these nine synthetic equity observations, in US dollars. They are teaching data, not a New Hope account record or a forecast. There are no deposits, withdrawals, credits or blocked amounts. Each value is the account valuation at that observation, including open-position results and costs already recognised. The observations do not represent individual trades.

At each observation, retain the highest equity seen so far. With a positive peak:

Drawdown in money = running equity peak − current equity.
Drawdown (%) = drawdown in money ÷ running equity peak × 100.

The largest observed decline runs from $11,000 at observation 3 to $8,800 at observation 6: $2,200, or 2,200 ÷ 11,000 × 100 = 20%. Equity recovers the old peak at observation 8 and makes a new peak at observation 9. Current drawdown is then zero, while historical maximum drawdown for this full series remains 20%.

Illustrative equity series without deposits or withdrawals. The $2,200 decline is 20% of the peak; recovering from $8,800 requires a 25% gain.

Money, percentage and absolute drawdown

The largest monetary drawdown and largest percentage drawdown can occur in different episodes. For example, a fall from $10,000 to $8,000 is $2,000 and 20%; a later fall from $20,000 to $17,000 is $3,000 and 15%. The later episode is larger in money, the earlier one in percentage. MetaQuotes documents these as separate equity drawdown statistics.

Do not use “absolute” as another name for the biggest peak-to-trough loss. In the MT5 history-report definition, Balance Drawdown Absolute measures the balance shortfall below the initial deposit. It uses a different reference point and a balance series. Our equity-only example does not establish that balance metric.

Why a 20% drawdown needs 25% recovery

The loss is divided by the old peak, but recovery is measured from the smaller amount remaining. To regain $11,000 from $8,800 requires $2,200 ÷ $8,800 × 100 = 25%. For a drawdown fraction d with 0 ≤ d < 1, the required gain is d ÷ (1 − d).

This is arithmetic with no external cash flows, not a prediction that recovery will happen. A deposit can lift account value without reversing trading losses. A withdrawal can lower the raw curve without a trading loss. With cash movements, obtain the dated ledger and the report's adjustment method before calculating or comparing drawdown.

Read the reporting method before comparing results

Myfxbook's official explanation distinguishes end-of-day, intraday and growth drawdown. Its displayed account statistic takes the highest of the three; the chart uses end-of-day and growth values. Our running-peak calculation does not reproduce Myfxbook's methodology. Use the Myfxbook verification checklist to inspect the supporting history.

• Basis: identify equity or balance, account currency and included costs.

• Coverage: record start and end dates. Excluding an earlier peak changes the measured decline.

• Frequency: identify tick, intraday or daily observations and gaps. Snapshots can miss a lower value between updates.

• Cash flows: reconcile deposits, withdrawals and adjustments; establish how the report handles them.

• Episode: retain peak, trough and recovery dates. If the peak has not been regained, mark recovery as incomplete.

• Context: check live versus demo or backtest, open exposure, position sizes and Profit Factor alongside drawdown.

Margin is a separate account requirement. MT5 defines margin level as equity ÷ margin × 100, not as a peak-to-trough decline. Read the broker's applicable thresholds separately. For account planning, use the capital calculation guide; for one position's cost-adjusted result, see trade break-even.

Frequently asked questions

Is there a universally safe drawdown percentage?

No single historical percentage establishes safety. Observation gaps, open exposure, leverage and the test period affect what the number reveals. A previous maximum is not a limit on future losses.

Can a profitable account still have drawdown?

Yes. An account can remain above its starting capital while falling below a later peak. Final profit and the path taken to reach it answer different questions.

What should I bring when discussing a New Hope PRO report?

Bring the period, equity history, cash-flow ledger, account type and configuration used. Start with the New Hope PRO product information and compare evidence on the same basis. A software name alone does not establish a drawdown level.

For the separate lending meaning of the term, see drawdown in banking versus trading.