Drawdown

Drawdown - A general term for a decline from a peak equity to a trough. Usually expressed either in currency or percentage, drawdown measures risk. Key drawdown metrics include Absolute drawdown (fall from initial balance) and Maximal drawdown (largest peak-to-trough drop). For example, going from a balance of $10,000 to $7,000 is a $3,000 (30%) drawdown. Traders monitor max drawdown to ensure it stays within acceptable limits.