High-Water Mark
High-water mark is the highest equity level an account has reached. Trailing drawdown and performance fees are calculated against it.
The high-water mark is the highest equity value an account has ever reached. It serves as the anchor for two important prop-trading mechanics: trailing drawdown and performance-based payouts.
For trailing drawdown, the high-water mark is the moving reference point from which the loss threshold is measured. When the account hits a new peak equity, the high-water mark advances; when equity falls, it does not retreat. The trailing limit "follows" the high-water mark at a fixed distance.
For payouts, some firms (particularly those using firm-capital or institutional models) calculate compensation only on profits earned above the prior high-water mark. This prevents a trader from being paid twice on the same equity gain after a drawdown and recovery.
A subtle but critical question is whether the high-water mark resets at end of day or runs continuously. Continuous tracking captures intraday spikes and advances the trailing drawdown ceiling instantly — sometimes punishing traders who briefly hit a new high before pulling back.
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