📖 Financial Lexicon Term
What is Drawdown?
The peak-to-trough decline in account equity, usually expressed as a percentage. Used to measure risk and evaluate trading strategy performance.
Detailed Explanation
Drawdown measures the maximum cumulative loss your trading account experiences from its historical peak balance. It is the primary risk metric evaluated by prop trading firms and institutional investors to assess a trader's risk exposure.
💡 Practical Trading Example
If your account balance peaks at $10,000 and then drops to $9,000 due to a series of losing trades, you have experienced a 10% drawdown.