At Liquid Markets, we believe that managing risk is as crucial as mastering strategy. One way we ensure that traders on our platform maintain robust risk management practices is through dynamic drawdown calculations. These metrics are not just about limiting losses; they are about ensuring fair evaluations, especially in diverse trading environments, from demo stages to live accounts. This is all seamlessly managed by our cutting-edge AI risk management system, .lacma.

.lacma is designed to enforce equity drawdown rules transparently and effectively, protecting both traders and the firm. By tailoring drawdown rules to trading stages and strategies, we create an environment that balances opportunity with responsibility. Let’s delve into the key drawdown types, their purpose, and how they can impact your trading journey. Please note that for the discussion below ‘equity’ means your floating balance during an open position, and balance implies no open positions. Therefore equity – balance = 0 profit or loss when there is no position open. The permitted daily equity loss is 5% for the 2 Step challenge and is used for reference.

1. **Percentage of Initial Balance** (Used for Funded Accounts Total Risk)
Imagine you start trading with £10,000. You want to limit your risk so that you don’t lose more than 5% of this starting amount. This means you don’t want your equity to fall below £9,500 (£10,000 – 5% of £10,000).

2. **Percentage of Yesterday’s Balance**
Let’s say you finished yesterday with £10,000 in your account. Today, you don’t want to lose more than 5% based on yesterday’s amount. So, if your equity dips to £9,500 or lower, you’ve hit your risk limit for the day.

3. **Percentage of the Larger Loss: Current or Yesterday’s Balance** (Used for 2 Step Challenge Daily Risk)
If yesterday you had £6,000, but today you’ve made some good trades and have £7,500, you look at both amounts. You don’t want to lose more than 5% of today’s higher balance, which means you wouldn’t want your equity to drop below £7,125.

4. **Percentage of the Lower Amount: Initial or Yesterday’s Balance** (Used for Funded Accounts Daily Risk)
You started with £10,000, but yesterday you ended with £9,000. Today, you’re back up to £9,800. You calculate the 5% risk limit based on the lower amount, which is your initial £9,000. So, you don’t want your balance to fall below £9,550.

5. **Percentage of the Lower Amount: Initial or Current Balance**
If your account has dropped from your initial £10,000 to £7,500, you calculate the 5% risk limit based on the current lower amount. This means you don’t want your equity to go below £7,125.

6. **Percentage of Peak Balance** (Used for Funded Accounts Probation)
Say the highest your account has ever reached is £12,000, but now it’s at £9,000. You calculate the 5% risk limit based on the peak amount of £12,000. So, you don’t want your balance to fall below £11,400, to protect the gains you’ve made.

7. **Percentage of Peak Equity (Not Used)**
This method isn’t used by Liquid because it can be unfair. It would mean calculating your risk limit based on the highest value your account has ever reached, even if that was just a brief spike due to market volatility. It’s not a fair measure because those highs can be very temporary and not reflective of your usual account balance.

Adapting Drawdown Metrics for Fairness

At Liquid Markets, we understand that no single drawdown calculation fits all trading styles or account types. This is why:

• Demo Accounts use less restrictive metrics, such as Equity% – Initial.Balance, to foster learning.
• Live Accounts transition to more robust metrics like Equity% – Initial/Yesterdays.Balance to ensure consistent discipline.

.lacma, our AI system, dynamically adjusts these parameters based on account type and trading conditions, maintaining fairness while safeguarding the firm’s capital.

Inspiration for Traders: Balancing Risk and Reward

Every trader aspires to maximise profits, but the key to longevity lies in managing risk. Drawdown rules are not restrictions—they are your safety net. At Liquid Markets, these metrics are designed to challenge you, protect you, and help you grow as a disciplined trader.

Imagine a scenario: you’ve had a stellar run, doubling your balance. But a sharp reversal in a fast-moving market wipes out half your gains. Thanks to your trading plan’s drawdown metric, you avoided breaching limits, preserved your capital, and kept your trading privileges intact. This is the power of well-managed drawdown.

Conclusion

Understanding and respecting drawdown calculations is a hallmark of a professional trader. At Liquid Markets, we’re committed to fostering a trading ecosystem where fairness, risk management, and growth coexist. Trust .lacma to handle the numbers, so you can focus on strategy. Remember: drawdowns don’t define you—they refine you. Stay disciplined, trade smart, and thrive.