1. What is drawdown?
Drawdown (DD-short) is a drop from the top to the bottom of a trading account for a certain period of time. Is usually calculated by the percentage (%). If the trading account has the highest top capital of $10,000 and is dropped to $8,000, then returns over $10,000, this trading account has a 20% drawdown. The higher drawdown, the riskier account, so investors should consider when deciding to invest in this account.
2. What are the types of drawdown on FXCE?
FXCE uses 3 types of drawdown to measure the riskiness of an account:
3. Why is drawdown important on FXCE?
The Drawdown measures the riskiness of an account. If you want to trade efficiently, consistently and for the long term, then drawdown is a very important part of your trading strategy.
Comparing 2% and 10% drawdown of an account, we see a big difference. With the same initial capital of $20,000 but just a high drawdown, you have lost nearly 85% of your account.
If you are a trader, the drawdown helps you know whether your trading strategy is effective or not. If the drawdown is too high, you need to adjust your trading strategy.
If you are an Investor, you can use drawdown to evaluate whether an account is high-risk or not. Then they can decide to invest or not...