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Forex Drawdown is the name given to represent a decline in an account value beginning with the peak value and ending with the subsequent trough value. It can be represented as a percentage amount, or as a full dollar figure.

How does it work? Let’s assume you have invested $10 000 in a Forex Managed account. During the recent stockmarket crash in late 2008, you lost $5000 of that original investment. You’ve lost $5000 or 50% of your investment. So, what percentage do you have to recover? 50%? No – you have to recover a full 100% of what you lost in order to return to your original investment. This is how a drawdown works.

forex drawdownHowever, you do not have to have an account defecit to illustrate a drawdown. Assume once more you have invested $10 000. During stock fluctuations, you lose 50% and are left with $5000. Then, for whatever reason, your account investment increases to $15 000, drops again to $10 000 and finally comes to rest at $20 000. Your drawdown would be $5000, or 50%, even though your account has rarely been in loss. In fact, you’re ahead 100% of your original investment.

This is basically how a Forex drawdown works