Daily Drawdown Limit

What is a Daily Drawdown Limit?

The daily drawdown limit is the maximum loss allowed in a single calendar day on your prop firm account. It's typically 4-5% of your account balance (or sometimes of your starting equity that day). Breaching this limit — even by a single dollar, including unrealized losses on open positions — results in immediate account termination.

How Daily Drawdown is Calculated

• Balance-based: Calculated from your closing balance of the previous day. If yesterday you closed at $103,000 and the daily limit is 5%, you can lose up to $5,150 today
• Equity-based: Calculated from your starting equity, including open positions. More restrictive because it counts unrealized P&L
• Includes open trades: If you have a running -$3,000 position and take another -$2,500 realized loss, you've hit $5,500 — past a 5% limit on $100K

Survival Strategy

The golden rule: set your own daily limit tighter than the firm's. If the firm allows 5%, stop trading after a 3% loss day. This gives you a buffer for slippage and one more losing trade. Many experienced prop firm traders stop after 2 losing trades in a row, regardless of the percentage — not because of risk, but because their judgment deteriorates after consecutive losses.