Daily Loss Limits Explained: Balance vs Equity
How prop firm daily loss limits are calculated, why balance-based and equity-based limits behave differently, and a simple way to never hit yours.
The daily loss limit (also called daily drawdown) caps how much your account can lose within a single trading day. Break it once and the account is usually closed, even if you're well above your overall maximum drawdown.
How it's calculated
Most firms set the limit as a percentage of either your starting balance or your balance at the start of the day:
- Based on initial balance: the limit is the same dollar amount every day. A 5% limit on $100,000 is always $5,000.
- Based on the day's starting balance or equity: the dollar amount grows as your account grows and shrinks after losing days.
Example (illustrative): a $100,000 account with a 5% daily limit based on the day's starting balance ends Monday at $102,000. On Tuesday, the account can't fall below $96,900 ($102,000 minus 5%).
Balance vs equity: the detail that catches traders
Some firms check the limit only against closed trades (balance). Others count open trades too (equity), so a position that's temporarily deep in loss can breach the limit even if it later recovers. Equity-based limits are stricter, especially if you hold trades through volatile moments.
When does the day reset?
The "day" follows the firm's server time, not yours. Many forex firms reset at midnight CE(S)T; futures firms often follow the exchange session (for example 5pm US Central). A loss just before the reset and another just after count against two different days.
A simple rule that keeps you safe
- Work out your daily limit in dollars every morning.
- Set your own stop at half of it. If you lose that much, stop trading for the day.
- Risk a small fraction of the limit per trade (for example a quarter), so one bad trade can't come close. The position size calculator turns that dollar risk into lots or contracts.
Some futures programs have no daily loss limit at all, but rely on a trailing drawdown instead. Filter for that in our prop firm rules database.
The examples above are illustrative. Each firm's exact formula is on its own rules page; we link to it from every challenge in our database.
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Educational content only, not financial advice. Prop firm evaluations use simulated capital and most traders do not pass. Confirm current rules on each firm's website.