PAMM drawdown: balance versus equity

A PAMM statement may show a fairly stable balance while open positions carry substantial losses. Conversely, closing a losing position can reduce balance without creating a new economic loss at that instant. Before interpreting drawdown, establish whether the chart uses balance or equity. These series do not always measure the same thing.

Balance and equity describe different layers

Balance generally reflects closed-trade outcomes and posted account transactions. Equity also incorporates unrealised profit and loss. The treatment of credit, holding charges and fees not yet posted depends on the host’s definitions. Read the field descriptions in the actual report: balance plus floating profit or loss is a useful simplified relationship, not a complete specification for every account.

A hypothetical account with two pictures

Suppose both measures start at 1,000, with no deposits, withdrawals, credit or other charges and no realised trading result. An open loss of 150 leaves balance at 1,000 while equity falls to 850. Relative to that starting point, balance drawdown is zero and equity drawdown is 15 percent. This is not a real account record or a limit on future losses.

Which peak is the reference?

Drawdown in each series compares a later observation with the highest earlier value of that same series. Do not silently combine a balance peak with an equity trough. Deposits and withdrawals can make a raw money chart confuse capital movements with performance, so identify any cash-flow adjustment or unit-value method. For a positive peak, dividing the difference between that peak and a later lower observation by the peak gives that observation’s drawdown.

Closing a loss need not create it

In the example, closing the 150 loss with no price change or additional charge moves balance to 850 while equity remains 850. The loss changes reporting location. Reviewing both closed results and open exposure helps prevent a smooth balance line from being mistaken for low risk. An open position alone is not evidence of misconduct either.

Observation frequency affects the result

An end-of-day series can miss a large intraday decline. Ask how often values were stored, when the latest observation was recorded and whether observations are missing. Do not rank daily and high-frequency maximum drawdowns as though their coverage were identical. Sparse data cannot establish that nothing happened between observations.

The investor has a separate experience

Entry timing, allocation changes, fees and settlement can make an investor’s path differ from the manager’s account chart. Where unit-value reporting exists, review its definition and included costs; do not assume every host implements the same method. History from before your entry is not a realised outcome for your own capital.

Record the comparison basis

• Whether the series is balance, equity or an adjusted index.
• The reporting period, observation interval and base currency.
• How cash movements, credit and costs are treated.
• The source and last reconciliation time of unrealised profit and loss.

When reviewing trading-account information, keep the drawdown number alongside its reporting definition. Use the help centre for terminology, not as a substitute for reviewable evidence from the account itself. This is educational material; historical drawdown does not cap future losses.