In finance, the drawdown is a concept related to loan facilities that allow the borrower to obtain funds from a credit line during the loan period.
A drawdown refers to each of the amounts the borrower accesses from the loan facility.
In an open forward contract, the borrower has access to the funds during the entire contract period – from one to 12, or 24 months. For each drawdown, the borrower receives the requested funds, plus the applicable forward points (in case of a forward premium) or less the applicable forward points (in case of a forward discount).
In the case of an open loan, such as a revolving credit, the drawdown period is the period of time in which the borrower is allowed to draw on the funds from that loan.
In economics, the drawdown measures the decline of a variable from a peak to a valley – the period in which an investor’s asset (typically a stock) is losing value.
The maximum drawdown (or Max DD) is the difference between the highest and lowest values of a variable (typically a stock).