Daily drawdown
Also known as: daily loss limit, maximum daily loss, prop firm daily drawdown
Daily drawdown: Daily drawdown, also called the daily loss limit, is the most an account may lose within one trading day under a prop firm's rules; the limit is recalculated at a reset time set by the firm.
How is daily drawdown calculated?
At the firm’s daily reset time, the floor for the day is set as the balance (or equity) at that moment minus the daily loss allowance, often a percentage of the initial account size. During the day the floor is usually checked against equity, so floating losses on open trades count: prop firm drawdown rules.
How does daily drawdown differ from maximum drawdown?
Daily drawdown resets every day and limits losses within one day; maximum drawdown, static or trailing, limits the total loss over the life of the account and does not reset.
Worked example
Illustrative only: a $100,000 account with a 5% daily loss allowance ($5,000) starts the day at a balance of $101,000, so equity must stay above $96,000 until the next reset. Three losing trades of $1,800 each would take equity to $95,600 and breach the limit.
Sources
- Trading Objectives, FTMO
Learn more
- Prop Firm Drawdown Rules: Static vs Trailing Drawdown Explained
Prop firm drawdown rules explained: daily drawdown, maximum drawdown, static vs trailing and end-of-day trailing, balance vs equity, with worked examples.
- What Is a Prop Firm? How Prop Trading Firms Work
What a prop firm is and how prop trading firms work: challenge fees, prop firm evaluations, funded and simulated accounts, profit splits, rules and risks.
Related terms
- Static drawdown
Static drawdown is a maximum loss limit fixed at a set level below an account's initial balance; unlike trailing drawdown, it does not rise when the account makes money.
- Equity drawdown
Equity drawdown is the fall in an account's equity, its balance plus floating profit and loss on open trades, from a reference level such as the starting balance or a previous high.
- Drawdown
A drawdown is the decline in an account's value from a peak to a subsequent low, usually expressed as a percentage of the peak.