A 20% loss needs a 25% gain to return to the starting value. Explore the changing denominator.
Educational scenarios, not observed prices, fund performance or investment recommendations. Rates are assumptions and can change.
Sources reviewed: 2026-10-20What it means
A drawdown describes a decline from a previous high. Recovery is measured from the smaller remaining balance, so the required gain is larger than the loss percentage. A two-point comparison does not identify the maximum drawdown in an entire investment history.
- Drawdown
- The percentage decline from a selected high to a later value, using the high as the denominator.
- Recovery gain
- The gain required from the remaining balance to regain the selected high, assuming no external cash flows.
How the calculation works
Start with 1,000 units. A 20% decline removes 200 and leaves 800. Regaining that 200 requires 200 / 800 = 25%, not 20%. The loss and recovery percentages use different bases. Moving the loss control shows how the required recovery accelerates as the remaining balance becomes smaller.
Formula
Remaining = 1,000 × (1 − L / 100); Recovery % = 100 × L / (100 − L)
Try a hypothetical example
Fixed 1,000-unit starting high, one loss, no new capital or withdrawals. The bars are a two-point illustration, not a market history.
- Starting amount
- 1000.00
- Remaining value
- 800.00
- Gain needed to recover
- 25.00%
Fixed reference cases
The file contains the same fixed educational reference cases for everyone. It excludes your search and current example choices.
| Assumption (%) | Reference case | Example case | Gain needed to recover |
|---|---|---|---|
| 0% | 1000.00 | 1000.00 | 0.00% |
| 10% | 1000.00 | 900.00 | 11.11% |
| 20% | 1000.00 | 800.00 | 25.00% |
| 50% | 1000.00 | 500.00 | 100.00% |
| 75% | 1000.00 | 250.00 | 300.00% |
| 100% | 1000.00 | 0.00 | No finite percentage gain from zero |
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What the example does not show
At a 100% loss the balance is zero. A percentage return on zero cannot restore the original value without new capital. The example excludes deposits, withdrawals, costs and changes in position size. It gives no estimate of recovery time or probability and is not a reason to take more risk to recover a loss.
Official educational references
Original explanation and example calculations by FinanceVelix. References support the concepts, not an endorsement of this site.
CME Group · Controlling Risk ↗Share this guide
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https://financevelix.com/en/learn/drawdown-recovery