Two limits, measured differently
A daily loss limit caps how much the account may lose within one trading day. It is measured from a reference point fixed at the start of each day, and it resets when the firm's trading day ends.
A maximum loss limit, often called maximum drawdown, caps how far the account may fall in total. It is measured either from the starting balance, which makes it static, or from the account's highest point, which makes it trailing. It does not reset.
Firms differ on nearly every detail below: what the percentage is taken of, whether open positions count, when the day ends and how trailing works. The examples use round numbers in account currency to show the mechanics. Your own firm's rulebook, read in full, is the only source for the rules on your account.
Balance-based and equity-based daily loss
Two account figures matter. Balance is the account value from closed trades only. Equity is the balance plus the floating profit or loss on open positions.
A balance-based daily limit is checked against closed results. An equity-based limit is checked against equity, usually continuously, so a floating loss counts the moment it appears, whether or not the trade is later closed at a better price.
Worked example: 50,000 account, 2,500 daily limit
Take a 50,000 account with a daily loss limit of 5% of the starting balance, which is 2,500. The day starts with a balance of 50,000 and no open positions, so the daily floor is 47,500.
- A morning trade closes at −1,200. The balance is 48,800, with 1,300 of room left.
- A second position opens and moves to −1,500 floating. Equity is 48,800 − 1,500 = 47,300.
- Under an equity-based rule, 47,300 is below the 47,500 floor. The limit is broken at that moment, although only one loss has closed.
- Under a balance-based rule, the balance is still 48,800 and nothing is broken yet. Closing the position at −1,500 would take the balance to 47,300 and break the limit then. If the position recovers and closes at −900, the balance is 47,900 and the day survives.
Under the equity-based rule, the recovery to −900 comes too late: the limit was broken at −1,500. What counts is the lowest point equity reached, not where the trade finished.
Where the day starts
Firms also differ on the reference point. Some use the balance at the start of the day. Others use the higher of balance and equity at that moment, which matters when a position is held through the reset.
Suppose the 50,000 account carries a trade showing +800 into a new day, and the reference is the higher of balance and equity. The reference becomes 50,800 and the floor 48,300. If the trade then gives back its 800, almost a third of the day's 2,500 is gone before any trade closes, while the balance has not moved.
When the day resets
The trading day ends when the firm says it does, which is rarely your local midnight. Typical choices are midnight in the firm's or broker's server time zone, or the close of a trading session. For a trader in Toronto or Vancouver, the reset can land in the afternoon or the evening.
Three things follow. Losses just before and just after the reset count against different days. Where the reference point uses equity, a position held across the reset carries its floating result into the new day. And the reset can shift by an hour when daylight saving time changes in either time zone. Write the reset time down in your own time zone.
Static maximum loss
A static maximum loss puts the floor at the starting balance minus the limit, and the floor never moves.
On a 100,000 account with a 10% static limit, the floor is 90,000. If the account grows to 108,000, the room to the floor is 18,000. If it then falls to 96,000, the room is 6,000. Profit adds room, and the floor stays at 90,000 throughout.
Trailing maximum loss
A trailing maximum loss puts the floor a fixed distance below the account's peak, also called its high-water mark. When the account makes a new peak, the floor rises with it. When the account falls, the floor stays where it is.
Worked example: 50,000 account, 2,500 trailing
| Event | Balance | Peak | Floor | Room |
|---|---|---|---|---|
| Start | 50,000 | 50,000 | 47,500 | 2,500 |
| Good week | 51,200 | 51,200 | 48,700 | 2,500 |
| New peak | 52,000 | 52,000 | 49,500 | 2,500 |
| Pullback | 50,600 | 52,000 | 49,500 | 1,100 |
After the pullback the account is still 600 above its starting balance, yet only 1,100 stands between it and the floor, less than half the original 2,500. Under a trailing limit, profit given back is room given back.
What the peak is measured on
Some firms trail the end-of-day balance. Others trail equity during the day, unrealized profit included. The difference is large. From a fresh 50,000 account, suppose a trade runs to +1,000 and is closed at +100:
- Trailing the end-of-day balance: the peak is 50,100, the floor 47,600 and the room 2,500.
- Trailing intraday equity: the peak is 51,000, the floor 48,500 and the room 50,100 − 48,500 = 1,600.
Under intraday trailing, 900 of room disappeared on a trade that made money.
Trailing limits that stop at the starting balance
Some trailing limits stop rising once the floor reaches the starting balance, or a set amount above it. From then on the limit behaves like a static one.
On the 50,000 account with a 2,500 trailing limit that locks at the starting balance, the floor reaches 50,000 when the peak reaches 52,500. If the account then climbs to 54,000, the floor stays at 50,000 and the room is 4,000. Before the lock, every new peak lifts the floor. After it, profit adds room just as it does under a static limit.
Which limit binds first
At any moment, what the account can lose before breaking a rule is the smaller of two figures: the room left today and the room left to the maximum-loss floor. The rule with the smaller figure is the one that binds.
Worked example: 100,000 account
Take a 100,000 account with a daily limit of 5,000, measured from each day's starting balance, and a static maximum loss of 10,000, which puts the maximum-loss floor at 90,000. Room is the smaller of the two distances: down to the daily floor, or down to 90,000.
| Day start | Daily floor | Room | Binds first |
|---|---|---|---|
| 100,000 | 95,000 | 5,000 | Daily loss |
| 104,000 | 99,000 | 5,000 | Daily loss |
| 93,000 | 88,000 | 3,000 | Maximum loss |
On the third day the daily limit still says 5,000, but only 3,000 separates the account from the maximum-loss floor. The headline daily limit is the wrong number to plan that day around; the smaller figure is the real one. With these rules, the daily limit binds whenever the day starts above 95,000, and maximum loss binds below it.
Why closed-trade tracking can understate risk
A spreadsheet or journal built from closed trades sees the balance and nothing else. Three things fall outside it.
- Floating losses. On the 50,000 account with an equity-based daily limit of 2,500, suppose today's closed trades total −1,000 and three open positions show −500 each. A closed-trade view shows 1,500 of room. Equity shows the day down 2,500, which is the limit.
- Risk to open stops. If the stops on open positions add up to 1,800 of risk and 1,500 of room is left, those positions can break the rule on their own, without another decision from you.
- Costs that post separately. Commission and overnight swap may be charged at different times from the close, and some firms count them toward the limits.
Anything computed from closed trades, including the prop-firm tracker in Aurith Journal, is accurate about what it can see and silent about open positions. While positions are open, the firm's own dashboard is the authority.
To run these numbers for your own account, use the prop-firm drawdown calculator. The position size calculator turns a dollar risk into a position size, and the drawdown recovery calculator shows the gain needed to climb back from a loss.