FTMO's drawdown rules end more challenges than any other element of the evaluation. Not because they are unusually harsh — they are broadly in line with the industry — but because they are consistently misunderstood. Traders who know their strategy, know their risk parameters, and have prepared carefully for the challenge still breach the drawdown limit because they are operating under a false model of how it actually works.

This article explains FTMO's drawdown rules precisely: what the trailing maximum drawdown is and how it moves, how the daily loss limit is calculated, the critical distinction between balance and equity, and how FTMO's methodology compares to the static drawdown used by firms like The5ers. By the end you will have an accurate mental model of the rules and know exactly how to track them through a live evaluation.

Two Separate Rules — Both Must Be Respected

FTMO enforces two distinct drawdown constraints simultaneously. Both apply at all times. Breaching either one ends the challenge immediately.

The daily loss limit — a maximum loss of 5% in a single trading day.
The maximum drawdown — a maximum total loss of 10% from the equity peak, calculated on a trailing basis.

Most traders understand these rules as numbers: 5% daily, 10% total. The misunderstanding is in the methodology — specifically, how the baseline for each calculation is determined. That methodology is where challenges end.

The Daily Loss Limit — Balance, Not Equity

FTMO's 5% daily loss limit is calculated from your account balance at the start of the trading day — not from your current floating equity, and not from the account's starting balance. The distinction matters enormously for traders who hold open positions overnight.

Here is a concrete example. You hold a position overnight that is sitting at a $1,500 floating loss when the new trading day begins. Your account balance is $100,000. Your daily limit for the new day is $5,000 — meaning your account cannot drop below $95,000 that day. But you are already $1,500 into that limit because of the overnight position. Your effective remaining daily room is $3,500, not $5,000.

Now suppose you open a new position that moves $2,500 against you. Your overnight loss plus your new loss equals $4,000 — 80% of the daily limit, from two positions. If the overnight position then moves another $1,000 against you, the limit is breached and the challenge ends. You have not placed a new losing trade. The limit was consumed by the combination of an overnight hold and a single new position.

This catches traders who enter sessions with open positions without accounting for unrealised losses in their daily limit calculation. Use our drawdown tracker to see your true remaining daily room at the start of each session, factoring in any open floating losses before you size a new position.

The Trailing Maximum Drawdown — How the Floor Moves

This is the rule that generates the most confusion and ends the most challenges. FTMO's 10% maximum drawdown is not anchored to your starting balance. It is a trailing drawdown — the floor rises as your equity rises, and it never comes back down.

Starting scenario: $100,000 account. Initial drawdown floor: $90,000 (10% below starting balance).

Now suppose you trade well in week one and your account reaches $106,000. At this point, the drawdown floor moves up to $95,400 — 10% below your new equity peak of $106,000. Your account balance has grown by $6,000. Your drawdown room has shrunk from $10,000 to $10,600 in absolute terms — but your floor is now $5,400 higher than it was when you started.

The consequence: if the market reverses in week two and your account falls from $106,000 back toward $96,000, you breach the drawdown limit at $95,400 — even though you have only given back approximately 10% of your account from its peak. From the starting balance, you are still up $5,400. But the floor has moved, and the evaluation ends.

This is the counterintuitive reality of the trailing drawdown: the better your early performance, the more constrained your subsequent margin for error. A trader who reaches $115,000 by day 10 has a drawdown floor of $103,500. They can lose only $11,500 from that point before breaching the limit — despite having built a $15,000 profit cushion. The cushion does not protect them from the floor the way they expect it to.

A Full Worked Example

Starting balance: $100,000. Initial floor: $90,000.

  • Day 5: Account reaches $108,000. Floor moves to $97,200.
  • Day 9: Account reaches $112,000. Floor moves to $100,800.
  • Day 14: Bad week. Account falls to $103,000. Floor remains at $100,800 — the floor never comes down. Room remaining: $2,200.
  • Day 15: One losing session of $2,500. Account falls to $100,500. Challenge ends — floor breached.

The trader in this scenario is still in profit from their starting balance. They have not lost money in the traditional sense. But the trailing mechanism means their drawdown room at the point of failure is a fraction of what it appeared to be when the challenge began.

Trailing vs Static — How Other Firms Compare

Not all prop firms use a trailing maximum drawdown. The5ers uses a static drawdown — the floor is fixed at 5% below the initial account balance and never moves, regardless of how high the account goes. A trader who reaches $115,000 at The5ers still has a floor anchored to $95,000 from the starting balance. Their room from peak is $20,000 — far more than the equivalent FTMO account would have at the same equity level.

The trade-off is that The5ers' static drawdown is anchored at 5% rather than FTMO's 10%. The absolute floor is tighter. But because it does not trail, early strong performance does not erode the room in the way FTMO's trailing system does.

For traders whose equity curves involve natural retracements — swing traders, macro traders, anyone whose strategy builds positions over days rather than sessions — the static drawdown is structurally more accommodating. For traders with linear, low-retracement equity curves, FTMO's trailing system is manageable because the floor never rises faster than their peak performance allows. See our full FTMO vs True Forex Funds comparison for a detailed breakdown of how the methodologies play out across different trading styles.

How to Track Your Drawdown Floor in Real Time

The most effective way to avoid breaching the trailing drawdown is to know your exact floor before every session — not as a rough estimate, but as a precise number calculated from your current equity peak.

The formula is simple: your drawdown floor equals your highest reached equity multiplied by 0.9. If your peak equity was $109,500, your floor is $98,550. That number does not change until your equity exceeds $109,500 and sets a new peak. Every session starts with that floor in place.

Our drawdown tracker calculates this for you automatically — enter your starting balance, your current equity peak, and your current balance, and it outputs your exact floor and remaining room. Running this calculation before each session takes thirty seconds and removes the single most common source of late-challenge failures.

The complete FTMO evaluation guide covers the full rule structure — phases, targets, profit splits, and scaling — for traders who want the end-to-end picture before beginning a challenge.