Daily Drawdown Rule
How We Calculate The Daily Loss Limit
Welcome traders. In this video, we’re going to walk through how we calculate the daily loss limit.
So hopefully you can avoid having this rule violated by fully understanding this rule. Now, the way that we calculate the daily loss limit is based on the previous days end equity, not the balance, the equity. This is calculated at 5:00 PM Eastern Standard Time, so ensure you know what time 5:00 PM Eastern Standard Time is in your location.
Now, let’s say we have a $100 K account, and this is the start of day one, the start of day two, the start of day three. So we start off with a $100K account on day one. Then we open a position on day one and it goes up into profit, but we haven’t closed it yet. We do close it before the end of day one and the start of day two. So let’s say we close it. That is now, new balance, and that’s our equity.
So the next day, if you are on a hare account, you need to check what it is for a turtle account. This is all in your dashboard. You can see how much available daily drawdown you’ve got left in your dashboard when you log in. But for this example, let’s say we’ve closed it $106,000. That means our balance is $106,000, means our equity is $106,000.
So we start the next day with $106,000 in balance and in equity. So if we start with $106,000 and we do $106,000 multiplied by 5% equals $5,300. That is how much we can lose for that day. Now you don’t have to worry about calculating any of this because it’s all done in our dashboard, automatically for you. I just want you understand how the daily drawdown rule actually works.
So let’s say on the second day, $100,700, that you have to play with. That’s the bare minimum that your equity can go down to on day two. So, that’s fine. It’s all very straightforward, if you’d close the trade before the day rolls over to the new day. So if you hadn’t closed that trade and your account has gone up, then you’ve left the trade open, the new day rolls over and now your trade goes back to break even, you would violate the rule and you would lose the challenge account, or you would lose your funded account.
The reason why we have this rule in place is because we want traders to be continually taking profits and accumulating their account balance, not just swinging for the fences and hoping that they hit a home run, get lucky. So trade management is important when it comes to trading successfully over a long period of time.
It’s important to know that we’re not the only prop firm that has this rule. Most prop firms have this rule, they just don’t articulate it very well and it’s kind of like a hidden rule they might have there and you might not fully understand it. So if you’ve got any questions, please chat to us on support or leave a comment below the video.
