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What Is a Drawdown Lock

A drawdown lock is a feature found in some prop firm accounts, most commonly during the funded stage, where the account’s trailing drawdown becomes fixed, or “locks,” at a specific balance level once a certain profit milestone is reached. This mechanism shifts the drawdown from a dynamic value that follows account growth to a static level that remains unchanged for the rest of the account’s life. Once locked, the drawdown no longer moves and provides the trader with more breathing room to manage trades without the risk of invalidating the account through continued growth.

How It Works in Funded Accounts

Many prop firms use a trailing drawdown that follows the account’s highest balance or equity during the evaluation and early stages of a funded account. This means that as the trader earns profit, the drawdown level rises accordingly, always maintaining a set distance below the highest point achieved. However, once the trader reaches a pre-defined profit threshold, such as $2,000 or $3,000 in gains, the trailing function is disabled and the drawdown becomes fixed at that locked level. From that point forward, the drawdown no longer moves, even if the account continues to grow.

For example, if a funded account begins at $50,000 with a trailing drawdown of $2,500, the drawdown will follow the trader’s highest balance until they recover the full $2,500 in profit and reach at least $52,500. At that point, the drawdown typically locks back at the initial starting balance of $50,000 or slightly above it, depending on the firm. Any further profits beyond this point do not affect the drawdown. The trader can continue trading with a fixed buffer between the current balance and the drawdown threshold. This provides greater flexibility and reduces the chance of disqualification due to later volatility.

Why Firms Use This Approach

The drawdown lock is used to reward consistent performance while still protecting the firm’s capital. By starting with a trailing drawdown, the firm can monitor a trader’s ability to manage risk during the early stage of funding. Once the trader demonstrates profit consistency and controlled execution, the firm rewards this by reducing the pressure of a constantly shifting drawdown. Locking the drawdown also makes account management simpler for the trader, since they no longer have to calculate how each gain affects their risk threshold.

This approach benefits both the firm and the trader. The firm limits its exposure during the riskiest period, which is the early phase of funding, while the trader is given a more stable environment once they have proven their ability to grow the account. It encourages disciplined growth while reducing the risk of breaching the account after initial success.

Key Considerations

The exact terms for when and how the drawdown locks can vary between firms and account types. Some firms may lock the drawdown once the first payout request is made, while others use a specific profit milestone. In some cases, the lock only applies if the account remains above the profit threshold for a set number of trading days. Because of these variations, traders should review the specific terms provided by the firm to understand when the drawdown will stop trailing.

It is also important to remember that even though the drawdown locks, it still represents a hard breach point. If the account equity drops below the locked drawdown level, the account will be disqualified. The lock does not remove risk. It simply removes the shifting component of the rule and gives the trader a more stable frame of reference for risk management.

Summary

A drawdown lock is a feature that stops the trailing drawdown from moving once the trader reaches a designated profit level, most often in funded accounts. After the lock activates, the drawdown becomes a fixed value and does not rise with further gains. This allows traders to manage their risk more effectively and avoid disqualification due to future account growth. The lock is a reward for consistency and is designed to protect both the trader and the firm. Traders should understand when the drawdown will lock and how it impacts long-term risk, as it remains a critical rule even in a fixed state.