drawdown - definition
Drawdown definition. Explained for Australia forex traders. Plain-English, no jargon. Calculation example included.
A drawdown is the peak-to-trough decline in a trading account's equity, expressed as a percentage. It measures the loss from the highest account value to its lowest point before a new peak is reached. Drawdown applies to any trading period and is used to assess risk exposure, not predict future losses.
Formula
Drawdown = (peak equity - current equity) / peak equity × 100%
Example
An Australian trader deposits AUD 10,000 and grows the account to AUD 15,000. A losing streak drops equity to AUD 11,000. The drawdown is (15,000 - 11,000) / 15,000 × 100% = 26.67%.
Edge cases
- In JPY-denominated accounts, drawdown is calculated in yen, not pips, because currency conversion can distort the percentage if measured in quote currency.
- ASIC-regulated brokers (e.g., AUFXBroker) may require drawdown to be reported as a percentage of net liquid assets, not gross equity, for compliance purposes.
- Some traders use "maximum drawdown" (peak-to-trough over the entire history) versus "current drawdown" (from the most recent peak), which can cause confusion in risk reporting.
See also
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