Balance versus equity
Balance records realized outcomes and cash flows. Equity also includes open-position P/L. Floating losses may remain invisible in the balance curve until the trade closes.
Peak and decline
Drawdown compares current value with a preceding peak of the same curve. Historical maximum drawdown requires scanning chronological points and updating the preceding peak. Two endpoints cannot reconstruct every intermediate decline.
Deposits and withdrawals
Deposits increase balance without establishing profit; withdrawals can resemble losses even without losing trades. Separate these flows and retain their dates. A return calculation must explain how contributed capital is treated.
Comparing accounts
Check update frequency, open trades, sample duration and simultaneous exposure. Prop-account daily-loss rules may use a different reference. Read the actual definition and reset time instead of replacing it with another formula.
Illustrative example
Balance 1,000 and open loss 300 produce equity 700. With preceding peaks of 1,000, balance drawdown is 0% while equity drawdown is 30%. Returning from 700 to 1,000 requires 42.86%, assuming no cash-flow changes.
Review checklist
- Identify balance or equity.
- Separate deposits and withdrawals.
- Use preceding peaks, never future peaks.
- Review sampling frequency and account rules.