It is a technical function that monitors the development of equity on a specific managed account connected to a strategy. If the maximum allowable drawdown loss is exceeded, CapitalGuard will disconnect the account from the strategy and automatically close all trading positions in that managed account and clear all pending orders. This effectively prevents further potential losses.
Based on the tracking of trades, deposits, and withdrawals, CapitalGuard calculates the High Water Mark (HWM) for a given managed account. The HWM is the highest equity achieved, which is used to track the highest account balance achieved for client accounts. The HWM is recalculated with each balance transaction in such a way that the drawdown on the account before the balance transaction and after the balance transaction remains the same.
No new positions are opened on the investor's account during the time period spanning from the activation of the CapitalGuard (and closing of trading positions) to the successful disconnection of the investor’s account from the strategy. For a better understanding, you can see an example of how CapitalGuard works.