Absolute vs Relative Drawdown: Definitions, MT5 Figures, and Which to Use

Absolute drawdown measures how far your balance fell below your initial deposit. Relative drawdown measures the largest percentage drop from any peak equity to a later trough. Maximal drawdown measures the largest drop in currency terms. MT5 reports all three because they are anchored differently and often describe different events.

If you have opened an MT5 account report or read a set of prop firm rules, you have seen absolute drawdown, relative drawdown and maximal drawdown sitting next to each other, and probably wondered why one strategy needs three different drawdown numbers. Each one exists for a reason. Each measures decline from a different anchor point, and confusing them leads to misreading both your own risk and your evaluation rules.

In 19 years I have found this distinction trips up even experienced traders, because the words sound interchangeable but the math is not. For anyone trading with a proprietary trading firm, it matters directly: whether your maximum loss limit is defined in absolute terms (from your deposit) or relative terms (from your peak) changes how much room you actually have.

This guide clears it up, building on the core idea covered in the hub guide to what drawdown is in trading: what each term means, how they are calculated, how they appear in MT5, and how Pipcy defines its limit.

What Is Absolute Drawdown?

Absolute drawdown is the difference between your initial deposit and the lowest point your balance reached below it. If you deposit $10,000 and your balance dips to a low of $9,300 at some point, your absolute drawdown is $700, or 7%. It only measures losses below the starting balance; gains above it do not affect it.

Absolute drawdown is anchored firmly to where you started. It asks a single question: how far below my initial deposit did the account ever fall? If your $10,000 account dropped to a low of $9,300 before recovering, the absolute drawdown is the $700 gap between the deposit and that low.

The defining feature is that absolute drawdown only looks below the starting line. If your account climbed to $12,000 and then fell back to $11,000, your absolute drawdown is still zero, because you never went below your initial $10,000 deposit. That makes absolute drawdown a measure of downside relative to your entry point specifically, not relative to your best performance. It is a useful early-risk gauge, but it says nothing about how much you gave back from a peak.

What Is Relative Drawdown?

Relative drawdown is the largest percentage decline from any peak in equity to a subsequent trough, regardless of your starting balance. If your account peaks at $13,000 and falls to $10,400, the relative drawdown is 20%, even though you are still above your initial deposit. It captures the pain of giving back gains that absolute drawdown ignores.

Relative drawdown is anchored to your highest point, not your deposit. It measures the worst peak-to-trough fall anywhere on your equity curve as a percentage, which is why it gives a fuller risk picture than the absolute figure.

Using the same account: if you deposited $10,000, ran it up to a peak of $13,000, then fell to $10,400, your absolute drawdown is zero (you never went below $10,000), but your relative drawdown is 20% (the $2,600 fall from the $13,000 peak). Same equity curve, two very different numbers.

Relative drawdown is closely related to maximal drawdown, and this is where most explanations go wrong. Both measure peak-to-trough declines. The difference is how MT5 picks which decline to report: maximal drawdown selects the largest drop by currency amount, while relative drawdown selects the largest drop by percentage. On many equity curves those are two different events, which is exactly why MT5 prints them as separate lines. For the full treatment of the concept, including the formula, worked examples and what counts as a good figure, see our guide to maximum drawdown.

Absolute vs Relative Drawdown: Side by Side

The core difference is the anchor point. Absolute drawdown measures decline from the initial deposit, relative drawdown measures the largest percentage decline from a peak, and maximal drawdown measures the largest currency decline from a peak. Absolute ignores losses that stay above the deposit; the other two capture every peak-to-trough fall.

The intuition is this: absolute drawdown tells you whether you have dipped into "losing money you deposited" territory. Relative and maximal drawdown tell you the worst decline the account suffered from any high, which is what actually reflects how bumpy the ride was. A strategy can show zero absolute drawdown while having an alarming relative drawdown, because all its declines happened above the deposit line. That is why serious risk assessment leans on the peak-anchored figures, a cornerstone of sound forex risk management.

How These Appear in MT5 Reports

In MT5 strategy tester and account reports you will see three figures. Absolute Drawdown is the initial deposit minus the lowest balance below it. Maximal Drawdown is the largest peak-to-trough drop measured in currency. Relative Drawdown is the largest peak-to-trough drop measured in percent. The last two can refer to different declines.

If you run a backtest or pull an account statement in MT5, these three lines appear together, and knowing what each means prevents misreading your own results:

• Absolute Drawdown = Initial Deposit minus Minimum Balance, and only if the balance ever fell below the deposit.
• Maximal Drawdown = the largest peak-to-trough drop by currency amount, shown in account currency with its percentage in parentheses.
• Relative Drawdown = the largest peak-to-trough drop by percentage, shown as a percentage with its currency amount in parentheses.

Traders often glance at the small absolute drawdown figure, feel reassured, and miss the much larger maximal or relative figures that reveal the strategy's true risk. When you evaluate any system, read maximal and relative first, because they tell you how deep the worst decline really was.

Balance Drawdown vs Equity Drawdown

One further distinction sits underneath all three figures: whether drawdown is measured on balance or on equity. Balance drawdown only counts closed trades, so a losing position that is still open does not register. Equity drawdown counts floating profit and loss, so it moves in real time with your open positions.

The gap between the two can be large. A strategy that holds losing positions for a long time can show a modest balance drawdown and a severe equity drawdown, because the damage never appears on the balance line until the trade is finally closed. This matters more for prop firm rules than for backtests: a limit measured on equity can be breached by an open position that later recovers, while a balance-based limit only reacts once you close.

A Worked Example: Where the Three Figures Split

Take a $10,000 account that rises to $12,000, falls to $10,800, recovers to $30,000, then dips to $27,600. Its absolute drawdown is zero, because it never fell below the $10,000 deposit. Its relative drawdown is 10%, from the $12,000 peak. Its maximal drawdown is $2,400, from the $30,000 peak. Three figures, three different answers.

Following the curve step by step shows why all three diverge:

• Deposit: $10,000.
• Rises to $12,000, a new peak. No decline below deposit, so absolute drawdown stays at zero.
• Falls to $10,800, a $1,200 drop from the $12,000 peak. That is 10%. Absolute drawdown is still zero, because $10,800 sits above the $10,000 deposit.
• Recovers to $30,000, a new peak. No new drawdown.
• Dips to $27,600, a $2,400 drop from the $30,000 peak. In currency that is double the earlier fall, but as a percentage it is only 8%.

Now the three MT5 figures separate:

• Absolute drawdown: $0. The account never traded below its deposit.
• Relative drawdown: 10%, taken from the first decline, because 10% beats 8%.
• Maximal drawdown: $2,400, taken from the second decline, because $2,400 beats $1,200.

The relative and maximal figures point at two completely different events on the same equity curve. This is why treating them as the same number gives an incomplete picture. And a trader who read only the absolute figure would conclude the account never took a loss at all, which is the most dangerous misread of the three.

Which Drawdown Measure Should You Use?

For assessing a strategy's true risk, read relative and maximal drawdown together, because they capture the worst peak-to-trough declines by percentage and by currency. For understanding a prop firm's rules, know whether the limit is absolute (deposit-anchored, static) or trailing (peak-anchored, moving). The two questions are separate.

The measures serve different jobs, so use each for its purpose. When you are evaluating whether a strategy or track record is safe, the peak-anchored figures are the honest numbers, because they show the deepest hole the equity curve ever fell into. Relative tells you how severe the fall was in proportion to the account; maximal tells you how many dollars it actually cost.

When you are reading an evaluation's rules, the critical question is different: what is the limit anchored to? An absolute, deposit-based, static limit gives you a fixed and predictable floor. A trailing, peak-based limit tightens as you profit. Misreading which one you are trading under is a classic cause of the breaches that make most traders fail prop challenges. The related distinction between a daily cap and an overall cap is covered in our guide to daily vs maximum drawdown.

How Pipcy Defines Its Drawdown

Pipcy Classic uses a 12% absolute drawdown measured from the starting balance, a fixed, static limit that does not trail your peak. Your breach level is a constant, known number anchored to your deposit rather than a moving target that tightens as you profit. Pips Mastery uses a fixed 250-pip maximum loss on the same static principle.

This is where the terminology becomes practical. When Pipcy describes the Pipcy Classic limit as a "12% absolute drawdown," it means the floor is fixed at 12% below your starting balance and stays there. It is anchored to your deposit and does not trail upward with your equity. The word "absolute" here signals a static, deposit-anchored limit, which is the opposite of a trailing limit that follows your peak.

That distinction matters for planning. With a deposit-anchored absolute limit, your breach level is one constant number you can calculate on day one and never revisit. You will not be stopped out for giving back profit, because the limit does not care about your peak, only about your deposit. The Pips Mastery Challenge applies the same static logic in pips: a fixed 250-pip maximum loss. Neither challenge adds a trailing or daily component, which is uncommon in the industry and a meaningful advantage for disciplined traders.

For the trailing alternative and why it is harder to trade against, see the guide to trailing drawdown.

Common Confusions to Avoid

The common confusions are reading only the small absolute drawdown figure and ignoring the larger peak-anchored ones, treating relative and maximal drawdown as the same number, assuming "absolute" always means a strict rule, and confusing an absolute prop limit with a trailing one. Each leads to underestimating risk or misjudging how much room a rule gives you.

The traps that catch traders reading these terms:

• Trusting the absolute figure alone. A near-zero absolute drawdown can hide a large relative drawdown when all declines happened above the deposit. Always check the peak-anchored numbers.
• Treating relative and maximal as interchangeable. They are selected differently, one by percentage and one by currency, so they often describe different declines on the same curve.
• Assuming "absolute" means "harsh." In prop rules, a deposit-anchored absolute limit is usually the more forgiving option compared with a trailing one, because it does not tighten as you profit.
• Confusing absolute with trailing. These are different anchors. An absolute limit is fixed to your deposit; a trailing limit follows your peak. Mistaking one for the other causes avoidable breaches.
• Ignoring the anchor when comparing firms. Two firms both advertising "10% drawdown" can be very different if one is static and the other trailing.

The rule of thumb: judge strategies by the peak-anchored figures, and judge prop rules by their anchor point.

Frequently Asked Questions

What is the difference between absolute and relative drawdown?

Absolute drawdown measures how far your balance fell below your initial deposit, while relative drawdown measures the largest percentage drop from any peak equity to a later trough. Absolute is anchored to your starting balance and ignores declines that stay above it. Relative is anchored to your highest point and captures every peak-to-trough fall.

What is absolute drawdown?

Absolute drawdown is the difference between your initial deposit and the lowest balance you reached below it. Depositing $10,000 and dipping to a low of $9,300 gives an absolute drawdown of $700, or 7%. It only measures losses below the starting balance, so if your account never falls below the deposit, absolute drawdown is zero.

What is relative drawdown?

Relative drawdown is the largest percentage decline from any peak equity to a subsequent trough, regardless of the starting balance. If an account peaks at $13,000 and falls to $10,400, the relative drawdown is 20%, even though the account is still above its deposit. MT5 reports it separately from maximal drawdown, which measures the largest decline by currency amount.

What is maximal drawdown in MT5?

Maximal drawdown in MT5 is the largest peak-to-trough decline measured in account currency, shown with its percentage in parentheses. It differs from relative drawdown, which selects the largest decline by percentage instead. On the same equity curve the two figures often refer to two completely different declines, which is why MT5 reports both.

Is absolute or relative drawdown more important?

Relative drawdown is generally more important for assessing a strategy's true risk, because it captures the worst peak-to-trough decline in proportion to the account. Absolute drawdown is a narrower gauge of losses below your deposit. When reading prop firm rules, though, whether the loss limit is absolute or trailing is the detail that determines how much room you have.

Is drawdown measured on balance or equity?

MT5 can report both. Balance drawdown counts only closed trades, so an open losing position does not register until it is closed. Equity drawdown counts floating profit and loss, so it moves in real time. The distinction matters most for prop firm limits, since an equity-based limit can be breached by a position that later recovers.

What does absolute drawdown mean in a Pipcy challenge?

In Pipcy Classic, a 12% absolute drawdown means the loss limit is fixed at 12% below your starting balance and anchored to your deposit. It is static and does not trail your peak, so you get a constant breach level you can plan around and cannot be stopped out for giving back profit. Pips Mastery uses the same static principle with a fixed 250-pip maximum loss.

Absolute, relative and maximal drawdown are three lenses on the same equity curve. Absolute measures the fall below your deposit. Relative measures the worst percentage fall from any peak. Maximal measures the worst fall in currency terms, which is not always the same event. For judging a strategy's real risk, read the peak-anchored figures. For judging a prop firm's rules, the key is whether the limit is absolute and static or trailing and moving.

Pipcy's use of a 12% absolute, deposit-anchored, static drawdown on Classic, and a fixed 250-pip limit on Pips Mastery, means one predictable breach level you can plan around, with no trailing and no daily component. If that clarity fits how you manage risk, the Pips Mastery Challenge and Pipcy Classic offer up to 95% profit split, payout requests processed within 48 hours, and free Pipcy Academy access.

Written by Vladimir Rybakov, Head of PIPCY Academy. Vladimir is a CFTe-certified financial technician with 19 years of market experience and the founder of HomeTraderClub.

Fact-checked by Snir Ahiel, former co-founder of The5ers and risk management specialist at Pipcy, with 15+ years trading Forex, Stocks, and Options.

Risk disclosure: Trading foreign exchange carries a high level of risk and may not be suitable for all investors. Pipcy provides simulated trading evaluations. Past performance and backtested results are not indicative of future results. Nothing in this article constitutes financial advice.