Short answer
Balance drawdown measures the fall in your account balance after trades are closed. Equity drawdown also includes profit and loss from trades that are still open.
Equity drawdown can therefore be larger than balance drawdown. If open trades move deeply into loss before recovering or closing, the balance alone can hide part of the risk.
Review both figures. Investigate a large difference instead of choosing the smaller number.
What is account balance?
Your balance changes when a trade closes.
Example:
Starting balance:
€10,000An open trade currently shows a loss of
€500Balance: still
€10,000Equity: approximately
€9,500
The balance has not changed because the trade is still open.
What is account equity?
Equity is your balance plus the current profit or loss of open trades.
It changes while the market moves. When no trades are open, balance and equity are normally the same.
What is balance drawdown?
Balance drawdown measures a decline from a previous balance high to a later balance low.
Because balance is based on closed trades, this measure does not show the full movement of positions while they remain open.
What is equity drawdown?
Equity drawdown measures a decline from a previous equity high to a later equity low. It includes open profit and loss.
This makes equity drawdown especially important when a strategy:
holds trades for a long time;
uses wide stop losses;
has several trades open together;
adds positions to an existing market move; or
closes several trades as one group.
Why can the two figures be different?
Imagine an open trade falls to -€1,000, later recovers, and closes at -€100.
The balance records the closed loss of
€100.The equity curve also shows the temporary
€1,000loss while the trade was open.
The temporary loss still mattered. It affected available margin and could have caused the account to breach a risk limit before the trade recovered.
Which drawdown should you use?
Use both, but do not ignore the larger relevant risk figure.
Ask:
How large was the worst equity decline?
How long did the drawdown last?
Did one trade or several open trades cause it?
Was the position size consistent with the intended risk?
Would the account have remained within its margin and risk limits?
A low balance drawdown is not reassuring if equity drawdown was much larger.
How to check drawdown in MetaTrader
After a MetaTrader backtest:
open the test report;
review both balance and equity information;
inspect the balance and equity curves;
look for periods where the curves separate; and
use Visual Mode to inspect the trades responsible for a large difference.
Keep the test's position size, starting balance, and deposit currency in mind when comparing two reports.
Common mistakes
Reporting only balance drawdown because it is smaller.
Comparing percentage drawdown from one test with money drawdown from another.
Comparing tests that use different position sizes.
Assuming an open loss did not matter because the trade later recovered.
Treating historical maximum drawdown as the worst drawdown that can occur in the future.
What to do next
If equity drawdown is materially larger than balance drawdown, inspect the underlying trades before changing settings or increasing risk. Confirm that the strategy's stop, position-sizing, and trade-management rules behave as intended.
Related Profectus guidance
Backtested and past performance do not guarantee future results. This article is educational and is not financial or investment advice.