What is Equity Drawdown?

Equity Drawdown (EDD) measures the percentage drop in total account equity from its highest recorded peak to its subsequent lowest trough. Because Equity factors in real-time floating profits and unrealized losses of all open trades, Equity Drawdown is the truest indicator of actual capital at risk.

Calculation formula

Drawdown at any equity trough is calculated as:

• EDD: The equity drawdown percentage (%).
• Max E: The peak equity achieved by the account ($).
• Eo: The lowest equity value reached during the downturn ($).

Why Equity Drawdown is the primary risk benchmark

• Reveals floating risk: Many trading strategies (e.g., martingale or grid systems) close winning trades frequently while holding losing positions indefinitely. While Balance Drawdown looks clean, Equity Drawdown exposes the true maximum loss the account survived.
• Stop-Out and margin correlation: Margin calls and broker Stop-Out liquidations are triggered based on Equity, never balance. High equity drawdown directly threatens account liquidation.
• Trader's Guard & Daily Lock alignment: Both the Trader's Guard Daily Equity Drawdown rule and the Daily Drawdown Trading Lock rely on equity movements to shield traders from catastrophic intraday blowouts.