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When it comes to forex trading, drawdown refers to the difference between a high point in the balance of your trading account and the next low point of your account's balance. The difference in your balance reflects lost capital due to losing trades. Drawdowns are a measure of downside volatility.

When you lose money on trades, you have what is known as a drawdown. Drawdowns are typically quoted as a percentage, but dollar terms may also be used if applicable for a specific trader.

As an example, say that your currency trading account begins with a balance of $100,000. You work your trading system, and after a bad trade, you see your account's equity drop down to $95,000. Your account has experienced a $5,000 drawdown, or a 5% drawdown.

A drawdown remains in effect as long as the price remains below the peak. In the example above, we don't know the drawdown is only