How is my drawdown calculated?

In Pivex, drawdown refers to the amount of loss your account can sustain before reaching a set limit. The calculation of drawdown helps you monitor and manage your risk effectively while trading. It is an important metric in both the Trading Challenge and Pivex Trading Stage.

Here’s how drawdown works and is calculated

Two Types of Drawdown:

Daily Drawdown:

This is the maximum amount your account balance can decrease within a single trading day. The daily drawdown is calculated from the account’s starting balance at the beginning of each trading day (00:00 UTC). The maximum daily drawdown is 4% of your initial starting balance.

Example:

If your account starts with $100,000, your maximum daily loss is $4,000 (4% of $100,000). If your balance drops by $4,000 or more in a single day, this will breach the daily drawdown rule.

Overall Drawdown:

This is the maximum allowable loss your account can sustain relative to the initial balance during the entire Trading Challenge. The overall drawdown is calculated based on the starting balance and can never exceed 6% of that balance.

Example:

If your initial balance is $100,000, your overall drawdown limit is $6,000. If your account drops to $94,000, you will have reached your overall drawdown limit, and your account will be deactivated.

Drawdown Calculation Formula:

Daily Drawdown = (Account Balance at the Start of the Day) – (Account Balance at the End of the Day).

Overall Drawdown = (Initial Balance) – (Lowest Account Balance at Any Time).

Important to Note:

Active Trades and Open Positions: The overall drawdown includes both closed positions and open positions. If your account balance has unrealized losses (i.e., losses from open positions), these losses are factored into the overall drawdown.

Consistent Monitoring: It’s important to monitor your drawdown regularly to avoid exceeding the limit. We provide real-time notifications on your dashboard and via email if you’re nearing your drawdown limits.

How to Avoid Drawdown Losses:

To avoid exceeding your drawdown limits, here are some important tips:

• Proper Position Sizing: Be cautious with the size of your trades. Trading with a larger position size than you can afford can quickly lead to breaching your drawdown limit.
  
• Use Stop-Loss Orders: Always set stop-loss levels to protect your positions from significant losses. A stop-loss is a risk management tool that automatically closes your trade if the market moves against you beyond a predefined level.
  
• Diversify Trades: Don’t put all your capital into a single trade or asset. Spread your risk by diversifying your trades across different instruments and markets.
  

Example of Drawdown Breach:

Let’s say you have a $50,000 account and you start with the maximum daily drawdown of 4% ($2,000). Here’s what could happen:

• Day 1: You place a trade on EUR/USD, but the market moves against you. By the end of the day, your account balance is down to $48,500. This means you’ve lost $1,500, which is within the daily drawdown limit.

• Day 2: You place another trade on GBP/USD, but it moves against you again. At the end of the day, your account balance is down to $46,000. Now, you’ve lost an additional $2,500. Your total drawdown is now $4,500, which exceeds your overall drawdown limit of $3,000 (6% of $50,000). As a result, your account would be deactivated.

Managing drawdown is crucial for success in both the Trading Challenge and Pivex Trading Stage. Stick to disciplined trading strategies, use stop-loss orders, and always stay within the risk management guidelines. This will help you maintain a stable performance and successfully progress to earning payouts while keeping your account active.

If you have any questions about managing drawdowns, feel free to reach out to our support team for guidance!