Course 3 Rules · Lesson 9 of 18

Daily Loss Limits

A daily loss limit is the most an evaluation or funded account may lose in a single day, usually 4 or 5 percent of the starting balance. It is measured from the balance or equity at the start of the day, in the firm's time zone, and at most firms it counts open losses, so a trade that dips through the limit and recovers has already breached it. It is the rule that ends more challenges than any other.

What you'll learn

  • Know how the daily limit is measured and reset
  • Understand the difference between balance-based and equity-based limits
  • Size trades so the daily limit is never in play

How it is measured

  • The reference point: usually the balance at the start of the day; at some firms the higher of balance and equity, which is stricter.
  • The day: the firm's server day, often midnight in Central European time or 5pm New York; check which.
  • What counts: closed losses at a few firms, open and closed at most, which means a drawdown on an open trade can breach.
  • The amount: a percentage of the starting balance, so on a 100,000-dollar account a 5 percent limit is 5,000 dollars regardless of your current balance at most firms; at some it is a percentage of the daily starting balance instead.

Balance versus equity

A balance-based limit only counts what you have closed. An equity-based limit counts what is open as well, which means a position that goes 5 percent against you before rebounding has breached even though you never closed it. Most firms use equity. The practical consequence is that your stop losses on all open trades together must sit inside the daily limit with margin to spare.

Sizing to the limit

If the limit is 5 percent and you risk 1 percent per trade, five consecutive stopped-out trades end the day at the limit; four leave no room for spread and slippage. Many traders risk 0.5 percent per trade during challenges and stop for the day after two losses, well inside the limit. Correlated positions count together: three trades in dollar pairs that all lose are one loss three times.

The most common breach

Holding a losing trade in the hope it turns. On a personal account that is a bad habit; on a challenge it is an equity breach waiting to happen. Set a stop, respect it, and know where your equity is relative to the limit at all times. The platform shows it; the firm's dashboard usually shows it as a countdown.

Key takeaways

  • Daily limits are usually 4 to 5 percent, measured on equity, from the day's starting balance.
  • Open losses count at most firms, so stops must sit inside the limit collectively.
  • Risk small enough that several losses in a day do not reach it.
  • Holding losers is how most daily breaches happen.

Knowledge check

  1. The daily limit is 5 percent on a 100,000-dollar account. You have three open trades each with a 2,000-dollar stop. If all three stop out, what happens?

Glossary

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Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.

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