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What is drawdown in forex?

Drawdown measures the decline of account equity from a peak to a low point, usually expressed as a percentage. For example, if an account grows from $10,000 to $12,000 and then falls to $9,000, the drawdown is 25%. Drawdowns show the level of risk and volatility in a strategy. A high drawdown indicates aggressive risk-taking, while a low drawdown reflects stability. Most professional traders aim to keep drawdowns below 20–30% to preserve capital. Monitoring drawdowns helps evaluate the sustainability of a trading system and whether risk management practices are effective.