Balanced-based drawdown prop firms offer retail prop traders greater flexibility than those that offer an equity-based drawdown method. Both methods aim to limit risk, and while one appears more generous on paper, it can result in faster breaches of drawdown limits. Therefore, prop traders should understand the difference and pick the one that works best with their strategy. I have analyzed both drawdown methods and provided examples below for prop traders to comprehend the minor but defining difference. Please do not trade with any prop firm until you have reviewed my balanced-based and equity-based drawdown examples.
Balance-Based Drawdown Prop Firms Comparison
- FTMO, the best prop trading firm with a genuine path for salaried prop traders.
- CFT, 30K+ traders educated and $10M+ payouts to its prop traders.
- FXIFY, 100% STP execution via 20+ bank and non-bank liquidity providers.
FTMO
In Summary the best prop trading firm with a genuine path for salaried prop tradersFTMO offers five funded account options, from $10,000 with a minimum fee of €89. The two-step verification challenge has a 10%-5% profit target, a maximum daily loss limit of 5%, and a maximum drawdown of 10%. The maximum leverage is 1:100, and FTMO provides 24/7 customer support in 18 languages. Prop traders can use EAs but must trade for at least four days during the challenge.
Traders at FTMO get a clear path to transition from retail to professional prop trading with a contract and a fixed salary. Therefore, I rank FTMO among the best balance-based drawdown prop firms.
Pros & Cons
- Reasonable profit targets and generous maximum loss levels
- 80% to 90% profit share with a fast withdrawal process
- Customizable two-step evaluation period with free retrials where applicable
- MT4, MT5, and cTrader accounts with generous leverage
- No information about which broker or brokers FTMO uses
CFT
In Summary 30K+ traders educated and $10M+ payouts to its prop tradersI rank CFT among the best balance-based drawdown prop firms due to its low fees. Forex traders get raw spreads from 0.0 pips for a commission of $3.00 per 1.0 standard round lot. Equity traders pay a 0.002% commission per side, commodity traders pay 0.0005%, crypto traders pay 0.025%, and index trading is commission-free. CFT has six funded account options, from $5,000, with a minimum fee of $68.
CFT has a two-step verification challenge with an 8%-5% profit target, a 5% daily loss limit, a 10% maximum drawdown, and no minimum trading day requirements. It also offers personal mentoring.
Pros & Cons
- Cryptocurrency withdrawals
- Proof of reserves of CFT emergency funds on the blockchain
- A reasonable minimum evaluation fee of $58
- Maximum profit share up to 80%
- Limited operational history
FXIFY
In Summary 100% STP execution via 20+ bank and non-bank liquidity providersProp traders at FXIFY can choose from one-step, two-step, and three-step verification challenges with a 10% profit target. The daily drawdown limit and the maximum drawdown depend on the verification challenge. FXIFY features eight funded account options, from $5,000, with a minimum fee of $59. It places FXIFY among the best balance-based drawdown prop firms.
FXIFY, part of the FXPIG brokerage, maintains a well-balanced asset selection of 300+ assets. It allows algorithmic trading solutions and news trading while also permitting weekend positions. Prop traders receive bi-weekly payouts, and FXIFY repays the evaluation fee to funded traders with the first payout.
Pros & Cons
- Traders can use EAs, grid trading, and martingale strategies
- Scalability of portfolios to $4M
- Maximum profit share up to 90%
- Low evaluation fees starting from $39
- Limited operational history
What Is a Balanced-Based Drawdown?
A balanced-based drawdown is one of two methods to calculate a decrease in account balances. The other method is an equity-based drawdown. Prop traders should understand that any drawdown method also includes floating profits and losses, and many prop firms will reset the profits after midnight, making it dangerous to keep trading losses overnight.
Prop firms use a balanced-based drawdown as a risk management measure, and most prop firms have a maximum drawdown of 10% with a smaller 5% daily drawdown limit. The values can vary based on select parameters outlined in the trading conditions.
Example of a Balanced-Based Drawdown
- A prop trader pays for a $50,000 account
- The daily drawdown limit is 5%, meaning a trader cannot lose more than $2,500 during a trading session
- The maximum drawdown is 10%, meaning a trader cannot decrease the account balance below $45,000
- A balanced-based drawdown has static levels, irrelevant if the account equity increases above or decreases below the initial balance
What Is a Balance-Based Drawdown Prop Firm?
A balanced-based drawdown prop firm uses the static balance-based drawdown method rather than the dynamic equity-based drawdown alternative. The former is more restrictive upfront, but more generous overall, while the latter has the opposite characteristics.
Balance-Based Drawdown Prop Firms – Pros and Cons
Prop traders must understand the pros and cons of balance-based drawdown prop firms to avoid confusion and avoidable breaches of trading rules.
The Pros of Balance-based Drawdown Prop Firms
- Access to trading capital
- A generous profit split
- Well-established prop firm partnerships with trusted brokers
- Static drawdown values that are more generous after prop traders increase their account balance
The Cons of Balance-based Drawdown Prop Firms
- Unregulated business
- Tight risk management rules
- Some consistency rules make select trading strategies uncompetitive
- Not all prop firms allow algorithmic trading
- Performance pressure
- Inexperienced traders rush to prop firms offering educational content
The Difference between Balance-Based Drawdown and Equity-Based Drawdown
The primary difference is that a balance-based drawdown has a static drawdown value based on the starting account balance versus a dynamic equity-based drawdown that adjusts each trading day based on the account balance.
A balance-based drawdown is more restrictive at first. As the prop trader increases the balance, it becomes more generous, as trading profits serve as a buffer for potential volatility spikes and trading losses. For example, a starting balance of $50,000, with a 10% maximum drawdown, allows a trader to decrease the account to $45,001 or $4,999. Once a trader increases the account to $55,000, the total acceptable loss is $9,999.
An equity-based drawdown would adjust the $55,000 to $49,501 and move it higher as the account equity increases. It is better for the prop firm, as it applies ongoing upside performance pressure and maintains strict risk management rules.
Bottom Line
Balanced-based drawdown prop firms offer more generous risk management to prop traders than equity-based alternatives. Many prop firms favor the latter, as it applies stricter risk management.
