A strategy's risk level depends on its Max Drawdown (MDD).
Max Drawdown (MDD) logs the maximum negative continuous difference since the strategy went live. It helps you determine the maximum potential risk a strategy may face. The value is provided in percentages.
If an investment began with 1M, reached 1.3M, and dropped to 700k, its MDD percentage would be as follows:
MDD = (700k - 1.3M) = 600k
MDD % = (600k / 1.3M) = 46 %
Bincentive-defined Risk Levels (color coded):
MDD < 5% : Risk Level 1 (Green)
MDD >= 5% & MDD < 10% : Risk Level 2 (Green)
MDD >= 10% & MDD < 15% : Risk Level 3 (Yellow)
MDD >= 15% & MDD < 20% : Risk Level 4 (Yellow)
MDD > 20% : Risk Level 5 (Red)