At Boer Funded, our Max Overall Drawdown rule is designed to promote disciplined trading and protect account equity. This rule applies to both open positions (floating equity) and closed positions (realized balance). Below, we outline how this rule works, how it is calculated, and examples to ensure clarity.
What is Max Overall Drawdown?
Definition: Max Overall Drawdown is the maximum allowable drop in your account’s equity (including open trades) or balance (closed trades) from the highest point (peak) reached during the challenge or trading phase.
Why it Matters: Including both open and closed positions ensures traders manage their risk effectively at all times, avoiding large floating losses that could jeopardize their accounts.
How Max Overall Drawdown is Calculated
Key Components:
Starting Balance: The initial balance of your account.
Peak Equity: The highest equity your account achieves, including profits from open and closed trades.
Drawdown Threshold: The maximum percentage or dollar amount your equity can drop below the starting balance or peak equity.
Formula:
Drawdown Amount=Peak Equity−Current Equity\text{Drawdown Amount} = \text{Peak Equity} - \text{Current Equity}Drawdown Amount=Peak Equity−Current Equity
If this amount exceeds the allowed drawdown threshold, the rule is violated.
Example Scenarios
Scenario 1: Starting Balance Example
Starting Balance: $100,000.
Max Overall Drawdown: 10% ($10,000).
Allowed Equity Drop: Your account equity must not fall below $90,000.
You begin trading and reach a Peak Equity of $105,000.
Later, due to open trades, your equity drops to $89,000.
Since $89,000 is below the $90,000 threshold, you violate the Max Overall Drawdown rule.
Scenario 2: Trailing Drawdown Example
Starting Balance: $100,000.
Max Overall Drawdown: Trailing by 10%.
Your account equity rises to $110,000 (new peak equity).
Your drawdown threshold adjusts to $110,000 - $10,000 = $100,000.
If your equity falls below $100,000, you breach the drawdown rule.
FAQs
Q: Does the drawdown include open trades?
Yes. Max Overall Drawdown includes both open (floating) and closed (realized) positions. It is calculated based on your current equity.
Q: Can the drawdown threshold increase?
Yes, the drawdown threshold adjusts upward when your equity reaches new peaks.
Q: What happens if I violate the rule?
A violation of the Max Overall Drawdown rule results in immediate disqualification from the challenge or funded phase.
If you have further questions, feel free to contact our support team.