Equity vs Balance Drawdown: How Each One Works

Balance-based drawdown measures your loss from closed trades only. Equity-based drawdown also counts the floating profit or loss on trades that are still open. That one difference decides whether a position that dips and recovers can end your evaluation. This guide shows how each rule is calculated, walks through the same trades under both, explains relative drawdown, and gives you a checklist for reading any rulebook before you pay.

All accounts discussed here are simulated. Nothing below promises profit, and trading is never risk-free.

TL;DR

• Balance-based drawdown tracks closed-trade results. Open trades do not move it until you close them.
• Equity-based drawdown tracks balance plus floating profit and loss, so an open trade can breach the limit before you exit.
• Relative drawdown usually means a limit that is a percentage of the account and moves as the account's high point moves. Firms use the word differently, so read the definition.
• The "balance vs equity" choice is only one of four settings. Whether the floor trails, and when it is measured, matter just as much.
• Profirms charges a one-time fee, never a subscription or activation fee. Its max-loss floor is set at the previous day's close and never trails intraday.

Table of Contents

• The terms: balance, equity and drawdown
• How balance-based drawdown works
• How equity-based drawdown works
• Balance vs equity drawdown: side by side
• The other three settings that change the answer
• Relative drawdown explained
• Daily loss limits are a separate rule
• How Profirms handles drawdown
• Which rule suits which trading style
• A checklist for reading any rulebook
• Profirms accounts at a glance
• FAQ
• Sources

The terms: balance, equity and drawdown

Three words carry this whole topic.

Balance is your account's cash value after closed trades. It changes only when you close a position (or when fees post).

Equity is balance plus the open profit or loss on every position you hold right now. If your balance is $50,000 and your open trade is down $600, your equity is $49,400. If it is up $600, your equity is $50,600.

Drawdown is how far the account is allowed to fall before the evaluation or funded account is closed. Every firm sets a floor, which is a dollar level or a percentage, and breaching it ends the account.

The word "drawdown" alone does not tell you how the limit is calculated. Each rule combines an anchor, a movement, whether the trail locks, and when it is sampled. Balance versus equity is the anchor question. The other three are covered below, because you need all four to know your real room.

How balance-based drawdown works

Balance-based drawdown looks only at realized results. Open-position profit or loss is excluded until the trade closes.

What that means in practice:

• A trade can swing against you, even far, without touching the limit, as long as you close it above the floor.
• A trade that is deeply negative on screen and then recovers never registers.
• The only thing that moves the number is a closed result.

Worked example: balance-based

Take a $50,000 account with a $2,000 max loss, so the floor is $48,000. These figures are illustrative, not a Profirms rule.

1. You buy and the trade falls. Equity drops to $48,400 while your balance stays at $50,000.
2. Price turns. You close for a $700 gain. Balance is now $50,700.

Under a balance-based rule, the $1,600 dip never counted. The account looks as if the trade only ever made money.

The flip side: if you hold a losing trade and it is still down $2,500 when you close it, balance drops to $47,500 and you have breached. Balance-based does not mean loss-free. It means losses count when realized.

How equity-based drawdown works

Equity-based drawdown watches your equity continuously, balance plus floating P&L, and compares it with the floor. The engine does not wait for you to close anything.

Worked example: equity-based

Same account, same $48,000 floor, same first trade.

1. Equity drops to $48,400. You are $400 above the floor. Still fine.
2. The trade slips another $500, so equity touches $47,900.
3. The account breaches at that moment, even if price reverses a minute later and you would have closed in profit.

The trade idea was right in both examples. Only the rule changed the outcome.

Why a stop does not always save you

Under an equity rule, the floor is a live price level, not a number you check after the fact. Slippage on a stop order, a fast spike through a thin market, or a fill past your stop can carry equity through the floor before the exit completes. If you trade equity-based accounts, size positions so that your stop plus realistic slippage sits comfortably above the floor, not on it.

Balance vs equity drawdown: side by side

Equity-based is the stricter reading for scalpers and swing traders because it penalizes the temporary adverse move. Balance-based gives you room to be wrong in the short term. Neither is automatically better for you. It depends on how you manage trades.

The other three settings that change the answer

Two accounts can both say "balance-based" and behave very differently. Check these as well.

Static or trailing

A static floor is fixed from the starting balance. A trailing floor rises as your account reaches new highs, which shrinks your cushion as you profit. Our guide on trailing vs static drawdown puts dollar figures on the difference, and the math traps of trailing drawdown show how a trailing floor can catch traders who think they have room.

What the trail follows

A trailing floor can follow the highest balance or the highest equity. Following equity is harsher: an open trade that spikes up for a moment lifts the floor, then falls back, and your cushion is now smaller even though you banked nothing.

When it is sampled

Some rules measure continuously, tick by tick. Others measure once a day at the close. This is the difference between an intraday and an end-of-day rule. The breaches that surprise traders are rarely arithmetic mistakes. They are gaps between the curve the trader watches and the one the firm's engine computes. For more on how an intraday measure feels in practice, read how a 5% end-of-day limit can feel like 10%.

Relative drawdown explained

You will see "relative drawdown" on some rulebooks and comparison sites, and it has no single standard meaning. Two common uses:

• Percentage-based limit. The limit is a percent of the account, such as 5% or 10%, rather than a fixed dollar number. On a $10,000 account, 5% is $500 of room.
• Trailing from a high point. The limit is measured from the account's highest point, so the floor moves up when the account makes a new high. Some firms describe this as relative, and some describe a fixed amount from the starting balance as absolute or static.

The practical test is simple. Ask what the limit is measured from: the starting balance or the highest point? Then ask whether that high point is a balance or an equity figure. If the rulebook answers both, you know what "relative" means at that firm. If it does not, treat the word as unexplained and ask support before buying.

Worked example: relative from a high point

A 5% relative limit on $10,000 allows $500 of loss.

1. Start: high point $10,000, floor $9,500.
2. The account grows to $10,600. The high point is now $10,600, and the floor trails to $10,100.
3. A $500 pullback from $10,600 ends the account, even though you are still above where you started.

That is what traders mean when they say a trailing rule punishes success. A static floor would still sit at $9,500.

Daily loss limits are a separate rule

A daily loss limit and a max drawdown are two different checks. The daily limit pauses or ends trading based on that day's result. Max drawdown caps total decline. A firm may measure one on equity and the other on balance. Our article on daily loss limits and funded-account drawdown explains how the two interact, and the five core risk controls lists the rest you should read.

How Profirms handles drawdown

Profirms uses an end-of-day drawdown. The loss threshold is locked at the previous day's close and the max-loss floor never trails intraday. That means a profitable open trade does not pull your floor up during the session, and you can recover losses within a single session without penalty.

Related Profirms rules:

• No consistency rule and no minimum trading days.
• A one-time fee per account, with no subscription and no activation fee.
• 90% of every payout is kept from the first payout.
• Evaluation and funded accounts are simulated.

The mechanics of this rule are laid out in distance to threshold under end-of-day drawdown. The full rulebook is on the Profirms site, and our payout details explain withdrawals.

Which rule suits which trading style

Scalpers and short-term day traders. Your exposure is brief and tightly stopped. Equity-based can work, but slippage on a fast move matters. A floor that does not follow intraday peaks removes one extra source of surprise.

Traders who hold through noise. If you let a trade breathe before it works, a balance-based rule suits your approach better, because a temporary dip does not count. Be disciplined about the exit, though, since realized losses still count in full.

Scaling traders who add to winners. Watch trailing behavior closely. An equity-trailing floor can tighten sharply when open profits spike and fade.

Newer traders. Fewer moving parts is better. A rule with a single, fixed reference point is easier to track than one that changes with every tick. Practice first and see how your own trades behave against the limit. Profirms includes practice trading and free charts so you can do this.

Whichever you choose, build the risk plan around the floor, not the profit target. Our drawdown-first plan for evaluations and the risk math for three drawdown types show how to size positions.

A checklist for reading any rulebook

Before you pay for any evaluation, find the written answer to each question.

1. Is the max loss measured on balance or equity?
2. Is the daily loss limit measured on balance or equity? Is it the same as the max loss?
3. Is the max-loss floor static or trailing?
4. If it trails, does it follow balance highs or equity highs?
5. Is it sampled continuously or at the end of the day?
6. At what time does the "day" reset, and in which time zone?
7. Are fees, commissions and swaps included in the calculation?
8. Does the limit lock at some point, or does it trail forever?
9. Are there consistency rules, profit caps or minimum days that interact with drawdown? (See daily profit caps.)
10. What happens to withdrawals: does a payout lower the floor or the balance that the limit uses?

If any answer is missing, ask support and keep the reply. A rule you cannot find in writing is a rule you cannot plan for.

Do the arithmetic before you size a trade

Convert the floor into contracts. Suppose your room to the floor is $1,500 and your stop is 20 points on a contract worth $5 per point per contract (check the real tick value for your market). One contract risks $100 on the stop, so 15 contracts would use the entire room. Add slippage and any open loss from earlier trades, and the sensible size is far lower. Under an equity rule, count the open loss from existing positions as already spent room.

Profirms accounts at a glance

If you want a drawdown that is set at the previous close and never trails intraday, Profirms offers evaluation, instant funded and daily payout accounts. These are published one-time prices, and the accounts are simulated:

CFD and crypto accounts are also available, each with its own rules, so read the CFD rules or crypto rules before you choose. Every order is fully refundable until its login is delivered (see the refund policy). See all Profirms account sizes and prices.

FAQ

What is the difference between equity and balance in trading?

Balance is your account value after closed trades. Equity is balance plus the profit or loss on positions that are still open. They are equal only when you hold no open trades.

What does equity drawdown mean?

It means the loss limit is checked against your equity, including floating profit and loss, rather than only closed results. An open trade that moves against you can breach the limit before you close it, even if price recovers afterward.

Is balance-based drawdown easier than equity-based?

Often, for traders who hold through short dips, because open losses do not count until you close. It is not a free pass, since realized losses still reduce the balance. Also check whether the floor is static or trailing, because that can matter more than balance versus equity.

How does relative drawdown differ from static drawdown?

Static drawdown is a fixed floor from the starting balance. Relative drawdown is commonly a percentage limit that trails from the account's highest point, though firms use the term differently. Read the definition in the rulebook, and confirm whether that high point is based on balance or equity.

Does Profirms trail the max-loss floor intraday?

No. The Profirms drawdown is set at the previous day's close and never trails intraday. Profirms charges a one-time fee with no subscription or activation fee, and 90% of every payout is kept from the first payout. All evaluation and funded accounts are simulated.

Sources

• Is a drawdown limit on balance or equity? | Hadal

Recommended

• Trailing Drawdown: The Math Traps That Catch Funded Traders
• Traders: Intraday Drawdown: How a 5% EOD Limit Can Feel Like 10%
• Risk Management for Evaluations: A Drawdown-First Plan
• Trailing vs Static Drawdown: The $90,000 Line That Ends Prop Accounts

Risk disclosure: Trading involves substantial risk of loss and is not suitable for every investor. Profirms runs simulated evaluation and funded trading programs, is not a broker-dealer or futures commission merchant and does not provide investment advice. Hypothetical or simulated performance results have inherent limitations, and no representation is made that any account will achieve profits or losses similar to those shown. Past performance is not indicative of future results.