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  3. Drawdown

Drawdown

A drawdown is the percentage or monetary decline from a portfolio or strategy’s previous peak to a later lower value before recovery.

Defined termReviewed 16 July 2026

Related terms

PortfolioMarket RiskRisk ManagementVolatilityAsset AllocationCapital Gain

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

term specific risk
Read the full risk disclosure
Trading glossaryReviewed 16 July 2026

Definition

A drawdown is the percentage or monetary decline from a portfolio or strategy’s previous peak to a later lower value before recovery.

In market context

Maximum drawdown is the largest observed peak-to-trough decline within the measurement period, while a current drawdown measures the still-unrecovered fall from the latest high. The statistic captures loss depth but not how quickly it occurred, how long recovery took, or whether hidden risks remain. Historical drawdown can guide risk limits, yet future losses can exceed anything in the sample or regime.

Risk context

A strategy with a small historical drawdown may still carry severe tail, leverage, liquidity, or model risk.

Source

Use the primary source for fuller regulatory or market context.

FINRA — Managing Investment Risk

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

term specific risk
Read the full risk disclosure

Related glossary terms

Selected from explicit term relationships and shared tags.

beginner3 min

Portfolio

A portfolio is the combined set of cash, holdings, positions, and other financial exposures considered together for allocation, performance, and risk.

portfolio · reportingRead guide
beginner3 min

Market Risk

Market risk is the possibility of loss caused by adverse changes in prices, rates, volatility, correlations, or other broad market conditions.

risk · marketsRead guide
beginner3 min

Risk Management

Risk management is the structured process of identifying, measuring, limiting, monitoring, and reviewing exposures that could impair a trade, portfolio, or account.

risk · strategyRead guide
beginner3 min

Volatility

Volatility describes the magnitude and frequency of price changes over a period, measured historically or inferred from market prices under a stated method.

risk · marketsRead guide