The drawdown is the measure of the decline from a historical peak in some variable (typically the cumulative profit or total open equity of a financial trading strategy).

In finance, the use of the maximum drawdown is an indicator of risk through the use of three performance measures: the Calmar ratio, the Sterling ratio and the Burke ratio. These measures can be considered as a modification of the Sharpe ratio in the sense that the numerator is always the excess of mean returns over the risk-free rate while the standard deviation of returns in the denominator is replaced by some function of the drawdown.

Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn't always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn't have to be.

Where an amount of credit is offered, a drawdown against the line of credit results in a debt (which may have associated interest terms if the debt is not cleared according to an agreement.)

Where funds are made available, such as for a specific purpose, drawdowns occur if the funds – or a portion of the funds – are released when conditions are met.