Profit-to-drawdown ratio: compare prop firm challenges

The PT:DD ratio could be the hidden reason you keep failing evaluations. It’s one of the most important yet overlooked metrics in prop firm trading, which might be working against you.

It compares how many percent you need to make in order to pass your challenge vs. how many percent you’re allowed to go into drawdown before you lose the account.

In this article, we break down how it works, what an ideal ratio looks like, and why understanding it can help you get an advantage when picking which prop firm to trade with.

Key Takeaways

• The profit-to-drawdown (PT:DD) helps you measure the difficulty of a prop firm’s challenge.
• Most prop firms require an 8%-10% profit target with a 10% drawdown.
• The ideal PT:DD ratio is 1, allowing for more room to create trading strategies and the potential to gain as much as you can risk.

What is a Profit-to-Drawdown (PT:DD) Ratio?

In prop firm trading, the PT:DD ratio (Profit-to-Drawdown) is a risk metric used to assess the difficulty of a prop firm challenge. Let’s quickly break down what this ratio is comprised of.

Profit Target

A Profit Target is the percentage of profits a trader must achieve in order to pass his prop firm challenge or proceed to the next phase of the evaluation.

Many prop firms now offer Instant Funding (no challenge phases) or one-step evaluation accounts, but the standard model for Forex prop firms is 2 phases:

• Phase 1 with an 8% Profit Target
• Phase 2 with a 5% Profit Target

Futures prop firms work with only 1 phase, often with a Profit Target of 6%.

Drawdown

Maximum Drawdown refers to the percentage of the account balance that a trader is allowed to lose before losing the account itself, regardless if it’s an evaluation or a funded account.