High-Water Mark

A high-water mark is the highest account value (or cumulative profit) previously reached, used as the reference point for calculating certain drawdown rules or performance fees — a trailing drawdown limit, for instance, follows the high-water mark upward but never resets downward. In a funded prop account, this means the maximum-drawdown threshold can rise as the account grows but never falls back with it. Understanding whether a firm's drawdown is measured from the high-water mark (trailing) or from the initial balance (static) materially changes how much room a strategy actually has to give back profit before breaching the rule.