What is drawdown in trading? How to calculate max drawdown

Short answer: What is drawdown in trading? It is the fall in an account or investment from a previous high to a later low (Investopedia, 2026). Maximum drawdown is the largest such fall in a chosen period, measured as a percentage of the high. It tells you how deep the worst decline was in the data you have; it does not set a limit on future losses.

What is drawdown in trading, and how do you calculate it?

For each point in an equity series, divide its value by the highest value reached up to that point, then subtract one. The most negative result is the maximum drawdown (MDD):

Drawdown at time t = (equity at t ÷ highest earlier equity) − 1

Use account equity: cash plus the current value of open positions. That makes unrealized gains and losses part of the measure. On Binance USDⓈ-M Futures, margin balance includes unrealized PnL, and Binance calculates that PnL from Mark Price; with open positions, margin balance changes in real time (Binance, updated 2026). Choose one valuation basis and keep it consistent.

Here is an illustrative account with no deposits or withdrawals during the period:

Date	Equity (USDT)	Highest equity so far	Drawdown
Jan 1	1,000	1,000	0%
Jan 8	1,100	1,100	0%
Jan 15	990	1,100	−10%
Jan 22	880	1,100	−20%
Jan 29	935	1,100	−15%
Feb 5	1,122	1,122	0%

The peak was 1,100 USDT and the lowest later value was 880 USDT. So MDD was (880 ÷ 1,100) − 1 = −20%. The account fell by 220 USDT from its peak. It was down only 120 USDT, or 12%, compared with the starting 1,000 USDT. That’s why drawdown and total loss since you started are different measurements.

To build a drawdown calculator in a spreadsheet, put dates in column A and equity in column B, starting at row 2. In C2, enter =MAX($B$2:B2) for the running peak. In D2, enter =B2/C2-1 for that row’s drawdown. Fill both formulas down; the maximum drawdown is =MIN(D2:D100) (adjust the final row to fit your data). Format column D as a percentage. If money was added or removed, use a unit value or a series adjusted for those cash flows; otherwise, a deposit can look like a new high and a withdrawal like a trading loss.

How much gain is needed to recover from a drawdown?

The gain needed is larger than the percentage lost because the recovery starts from a smaller base. Calculate it as (1 ÷ (1 − drawdown)) − 1. The table uses illustrative percentages:

Fall from peak	Gain needed to return to that peak
−10%	11.1%
−20%	25%
−30%	42.9%
−40%	66.7%
−50%	100%
−60%	150%
−70%	233.3%
−80%	400%
−90%	900%

For example, after a 50% fall, 1,000 becomes 500. A 50% rise takes 500 to 750, not back to 1,000; doubling from 500 requires a 100% gain. These figures describe arithmetic, not a forecast that an account will recover. If a possible fall would be too large for you to hold through, revisit the amount exposed before entering.

What does maximum drawdown tell you about a track record?

It tells you the worst peak-to-low fall in the observed series and period. It doesn’t tell you the worst fall that could happen next. A longer record can include more market conditions and more opportunities for a low, so compare records over similar periods and ask how often each value was sampled.

That time effect also appears in a specific mathematical model. Magdon-Ismail, Atiya, Pratap and Abu-Mostafa studied maximum drawdown for Brownian motion with drift. Their expected maximum drawdown’s long-horizon behavior varies with the model’s drift; the paper doesn’t offer a forecast for any particular trading account (Magdon-Ismail et al., 2004). The practical point is narrower: an MDD from a short track record is not directly comparable with one measured over many more years.

Check these details before comparing two reported figures:

• Same period length. Note the start and end dates. A recent winning stretch does not erase an earlier fall if the reported figure covers only the recent period.
• Same observation frequency. Daily closing values can miss a deeper intraday low. Monthly values can hide both intraday and within-month falls. Ask whether the series uses intraday, daily, or monthly equity.
• Same equity basis. Find out whether open positions are valued at market, whether fees and funding are included, and whether deposits and withdrawals are adjusted. The Binance page above shows why wallet balance and margin balance can differ when futures positions are open.
• Both depth and duration. In the example, equity took 14 days from its Jan 8 peak to reach the Jan 22 low, then 28 days from the peak to make a new high on Feb 5. A percentage alone leaves out how long the account stayed below its peak.

Ask for the equity series behind the number, its sampling interval, the peak and trough dates, and the date it returned to a new high. A headline MDD without those details isn’t enough to judge how it might fit your time horizon. The risk-reward ratio guide explains another measure; neither one replaces checking the underlying results.

Is drawdown the same as a loss limit?

No. Drawdown measures a fall already visible from an earlier peak. A loss limit is a rule or threshold intended to stop or restrict activity after a specified loss. They answer different questions: one describes an observed decline, while the other states an intended rule.

Also check whether a stated limit is measured from the day’s start, the account’s high-water mark, or the original balance. Those starting points produce different thresholds, so read the written definition before treating it as a cap. In a futures account, liquidation rules are separate from MDD; see how Binance Futures liquidation works for that mechanism.

Is a 20% drawdown bad?

Not by itself. A 20% fall means equity is one-fifth below its prior peak, but whether you can tolerate that depends on your finances and when you may need the money. Compare the worst observed decline with the amount you could hold through, then size any position so a plausible loss stays within your own limit. Our guide to crypto position size covers how to turn a loss budget into a trade size.

If you’re reviewing a pool or manager, ask what equity is measured, how often it’s checked, and what action follows. We run Cointrapper, a private trading pool on Binance. Its risk manager independently checks trading limits and falls in pool value and can stop trading, but these controls don’t prevent all losses. If you manage your own account, the spreadsheet steps above are a free way to calculate drawdown from your own equity history.

Past performance does not guarantee future results. Crypto trading is high risk, you can lose your entire investment, and nothing here is individual investment advice. Read more about crypto investment risks.