A high-water mark (HWM) is a clause in performance-fee arrangements stating that fees are charged only on new profit — gains above the highest value the account has previously reached. It is standard in hedge funds, and it is the first thing to verify in any profit-share trading service.

A worked example

Suppose an account starts at $100,000 with a 35% profit share, settled monthly:

  • Month 1: the account grows to $106,000. New profit: $6,000. Fee: $2,100. The high-water mark is now $106,000.
  • Month 2: the account falls to $102,000. Below the mark — no fee.
  • Month 3: the account recovers to $105,500. Still below $106,000 — no fee, despite a profitable month.
  • Month 4: the account reaches $109,000. Fee applies only to the $3,000 above the old mark: $1,050. The mark moves to $109,000.

Without the clause, months 3 and 4 would both have been charged in full — the investor would have paid twice for ground covered twice.

What the clause really does

The high-water mark converts the operator’s incentive from generate gross swings to generate durable gains. Volatility that round-trips produces nothing for the operator; only progress does. It also means drawdowns cost the operator directly — every drawdown must be repaired, in full, for free, before revenue resumes. An operator who accepts that clause is betting on their own consistency.

Variations to read carefully

  • Reset clauses. Some funds reset the mark annually — diluting the protection. A permanent mark is stronger for the investor.
  • Deposits and withdrawals. The mark should adjust proportionally when you add or remove capital, so the accounting stays honest.
  • Measurement basis. Realised equity is cleaner than floating equity that can be marked conveniently.

GOLD STRIKE applies a permanent high-water mark on every mandate: the share applies only to profit above your account’s previous peak, and a drawdown must be recovered in full before any invoice exists. The full mechanics are on the terms page.

Frequently asked questions

Is a high-water mark the same as a hurdle rate?

No. A hurdle rate requires returns to exceed a benchmark before fees apply; a high-water mark requires the account to exceed its own previous peak. The two can be combined.

Who tracks the high-water mark?

The operator calculates it, but it should be verifiable from your own broker statements — one of the advantages of trading in your own account, where every number is independently visible to you.

What if I withdraw profits?

The mark adjusts pro-rata for withdrawals under standard treatment. What must never happen is the mark quietly resetting downward without capital leaving.