What does it mean to have a 'drawdown' in Forex Trading?

A drawdown in Forex Trading is the difference between the balance of your account and a net balance of your account. The net balance takes into account open trades that are currency in profit, or currently in a loss. So when your account net balance is lower than your account balance, then this is called drawdown.


Let us have a look at a short example: A Forex Trading Strategy that begins with a balance of $5.000 and sees an equity drop down to $4500 has seen a $500 drawdown.