What Is a Drawdown?

A drawdown is a peak-to-trough drop in an investment, trading account, or fund over a specified time period. The percentage difference between the peak and the subsequent trough is sometimes referred to as a drawdown. If a trading account has $10,000 in it and the funds decrease to $9,000 before returning to $10,000, the account has experienced a 10% drawdown.
Drawdowns are useful for assessing the historical risk of various assets, comparing fund performance, and keeping track of personal trading performance.