1. What is Equity Drawdown
An equity drawdown is the percentage of decline in the equity in a trader's account. An equity drawdown is defined as the decline from a high peak to a pullback low of the equity in a trader's account (open orders).
However, users including investors and traders all are interested in the maximum equity drawdown in a time period. So in addition to the equity drawdown at each time, we will learn more about the maximum equity drawdown in this article.
(The account overview shows the maximum equity drawdown)
2. How to calculate the Equity Drawdown
Example: Your balance is $1000. At this time Equity=Balance=$1000. Then you place some orders.
Observe The Equity Drawdown column, we see 0.0454 (4.54%) as the highest decline. So here comes the maximum equity drawdown.
Formula of the maximum equity drawdown:
3. Equity Drawdown Chart on FXCE
Users can view the equity volatility and equity drawdown through two charts on the FXCE platform:
- Balance - Equity Chart
- Drawdown Chart
Note: To view only the Equity parameters, click off the Balance line, the Balance Drawdown line, and the Floating Drawdown line.
a. View Drawdown from time to time
We can see in this account:
(Data was collected before 11/8/2021).
- At 19:08 on 11/05/2021: Initial equity is $ 10,000. (Since the account has no orders at this time, Equity = Balance). The drawdown is 0%.
- At 00:04 on 13/05/2021: The equity increased to $10,005. The drawdown is 0%.
- At 04:04 on 13/05/2021: The equity decreased from $10,005 to $10,003.
Equity drawdown = (10,005-10,003)/10,005 *100%= 0.02%
b. View the maximum equity drawdown
Step 1: Find where the equity decreased the most
Looking at the overview of this account's Equity Drawdown Chart, we can see 1.43% as the highest drawdown (data was collected before 11/8/2021).
Click and drag if you want to enlarge the chart for detail and accuracy. Moving the mouse to the highest where the equity drawdown is 1.43%, we see at 20:50 on 04/08/2021 the equity is $10,180.
Step 2: Find the previous highest equity
In Equity Chart, zoom in on the chart for the period from 20:50 on 04/08/2021 to earlier and move the mouse to find the highest equity. The highest equity found is $10,328.
The maximum equity drawdown is (10,328-10,180)/10,328*100=1.43%
***Note: Withdrawal/Deposit has no effect on The Equity Drawdown.