Guide

Floating drawdown: why it matters more than returns

When you look at a trading strategy, your eye goes to the return first: “+40% this year”. Yet it is another figure that tells you what you are really risking: the worst fall the account went through along the way. This guide explains that figure, why it is often missing, and how to read it.

Drawdown, floating drawdown: what are we talking about?

A drawdown is the fall of an account between a peak and the lowest point that follows, expressed as a percentage. An account that goes from €10,000 to €7,000 before rising again has had a 30% drawdown.

There are two ways of measuring it, and the difference is essential:

Drawdown on closed positions only counts losses actually realised. A losing position that is still open does not appear in it.
Floating drawdown also counts the losses of positions still open, at the worst moment. It is what the account would have been worth if everything had been closed at that instant.

A strategy can show a “closed” drawdown of 5% and have gone through a floating drawdown of 70%: all it takes is keeping its losing positions open until the market comes back. As long as it comes back, nothing shows in the closed figures. The day it does not, the loss arrives all at once.

It is what you will live through, not what you will read

The annual return is read after the fact. Floating drawdown is something you live through in real time: it is the day your €5,000 account shows €1,500. Many people stop everything at that point and turn an unrealised loss into a real one. Before committing, ask yourself whether you could bear to see that figure on your own account.

Losses are not recovered at the same pace

After a fall, it takes a larger rise to get back to the starting point:

After a fall of 10%, it takes a rise of 11%.
After a fall of 25%, it takes a rise of 33%.
After a fall of 50%, it takes a rise of 100%.
After a fall of 75%, it takes a rise of 300%.
After a fall of 90%, it takes a rise of 900%.

Beyond 50%, recovering becomes very difficult, and the time spent underwater can be counted in months or years.

It says something about the method

A floating drawdown much larger than the closed drawdown points to a strategy that keeps its losing positions open while waiting for the market to turn, like grid or martingale strategies. It is not necessarily a scam, but it is a very specific risk: that of a market move longer or stronger than expected.

How to read it in practice

Look for the floating drawdown, not just the closed drawdown. If it is not published, ask for it. If it exists nowhere, that is information in itself.
Look at the date and the context. An old worst drawdown, followed by a reduction in position sizes, does not read the same way as a worst drawdown from last week.
Compare it with the return. 30% a year with an 80% floating drawdown has nothing in common with 30% a year with a 15% drawdown.
Relate it to your own money. A 75% drawdown on €1,000 means €750 came very close to disappearing. Choose your amount accordingly: the global stop loss is only a last-resort safety net, set at 95%. And bear in mind that a stop loss that triggers turns the floating drawdown into a real loss.
Remember that the past does not set limits on the future. The worst known drawdown is a minimum, not a maximum: the next bad period can be worse.

And at PlanetFinance?

The strategy's worst estimated floating drawdown is about 75%, in April 2025, on a basket of positions that was eventually closed in profit. Position sizes have been reduced since. The calculation method and the details are on the Risks page, with a simulator that applies this drawdown to the amount of your choice.