How do I calculate the New Maximum Drawdown Limit when requesting a payout?

To determine the breach level of the maximum drawdown limit:

Step 1 - Calculate the New Max Drawdown Level

Step 2 - Compare the New Max Drawdown Level to the initial balance

Formula:

New Maximum Drawdown (Max DD) Level = HWM Balance - Payouts requested - 10% of the initial balance

The High Water Mark (HWM) Balance is the highest point of the account balance.

Assume a 100k account, initial Max Drawdown Level = $90k (10% Maximum Drawdown Limit)

Scenario A - Request for payout when the account is at its HWM level

New Max Drawdown Level = 105 - 2k - 10k = 93k

Distance between Balance after payout and New Max Drawdown = $103k - $93k = $10k buffer

Scenario B - Request for payout when the account is below its HWM level

Realized Profit on the Account = $5k
HWM Balance = $105k
Balance on the Account = $105k
Maximum Drawdown = $95k (Trailing: HWM Balance - 10% from initial balance)
Realized Loss from trading after reaching HWM Balance = $2k
Balance on the account after realized loss from trading = $103k (HWM Balance is still @ $105k)
Request Payout = $3k
Balance after payout = $100k

New Max Drawdown Level = 105 - 3k - 10k = 92k

Distance between Balance after payout and New Max Drawdown = $100k - $92k = $8k buffer

Scenario C - Request for payout when the account is below its HWM level

Realized Profit on the account = $30k
HWM Balance = $130k
Balance on the Account = $130k
Maximum Drawdown = $100k (Stop Trailing - The maximum drawdown limit will trail up to the maximum of the initial balance.)
Realized Loss from trading after reaching HWM Balance = $5k
Balance on the account after realized loss from trading = $125k (HWM Balance is still @ $130k)
Request Payout = $5k
Balance after payout = $120k

New Max Drawdown Level = 130k - 5k - 10k = 115k > Initial Balance = Max DD remain at 100k

Distance between Balance after payout and New Max Drawdown = $120k - $100k = $20k buffer

Scenario D - Request for payout when the account is below its HWM level

Realized Profit on the Account= $30k
HWM Balance = $130k
Balance on the account = $130k
Maximum Drawdown = $100k (Stop Trailing - The maximum drawdown limit will trail up to the maximum of the initial balance.)
Realized Loss from trading after reaching HWM Balance = $20k
Balance on the account after realized loss from trading = $110k (HWM Balance is still @ $130k)
Request Payout = $5k
Balance after payout = $105k

New Max Drawdown Level = 130 - 5k - 10k = 115K > Initial Balance = Max DD remain at 100k

Distance between Balance after payout and New Max Drawdown = $105k - $100k = $5k buffer

Scenario E - Request for payout when the account is below its HWM level

Realized Profit on the Account = $30k
HWM Balance = $130k
Balance on the Account = $130k
Maximum Drawdown = $100k (Stop Trailing - The maximum drawdown limit will trail up to the maximum of the initial balance.)
Realized Loss from trading after reaching HWM Balance = $25k
Balance on the account after realized loss from trading = $105k (HWM Balance is still @ $130k)
Request Payout = $5k
Balance after payout = $100k

New Max Drawdown Level = 130 - 5k - 10k = 115K > Initial Balance = Max DD remain at 100k

Distance between Balance after payout and New Max Drawdown = $100k - $100k = $0k buffer Potential Breach upon opening a new trade

Reference

How Max daily loss limit works (Unrealized P&L)