How is the daily loss limit calculated?

The daily loss limit is the maximum amount (measured in account equity) that the account can lose on any given day. The daily loss limit is set for the day as the stated percentage (i.e. 5%) of the previous day’s end of day equity at 17:00 EST.

The daily loss limit will not be adjusted intraday. If the account equity reaches a new high watermark level from profitable positions (Realized or Unrealized) on that day, it will not affect the daily loss limit on that trading day.

Example 1 - Unrealized P&L 

Day 1 - User opens a position and ends the day with -$3,000 as unrealized P&L 

• Unrealized profit/loss (P&L): -$3,000
• Equity at End of Day: $97,000 ($100,000 - $3,000)
• Next day 
  • Max daily loss amount: $4,850 ($97,000 * 5%) 
  • Max daily loss equity trigger level: $92,150 ($97,000 - $4,850) 
  • Max daily profit equity trigger level $102,000 ($97,000 + $5,000)

Day 2 - The unrealized P&L continues to grow and reach a total of $7,900

BREACH

• Equity Start of day 2 balance: $97,000
• Day 2 Unrealized P&L: -$4,900
• Total unrealized profit/loss (P&L): $3,000+ $4,900 = $7,900
• Equity: $92,100 ($100,000 - $7,900)
• Limit is breached when equity falls below the Daily Loss Limit Trigger level of $92,150

Example 2 - Realized P&L 

Day 1 - The user opens and closes a position, and ends the day with -$3,000 realized P&L

• Profit/loss (P&L): -$3,000
• Equity: $97,000 ($100,000 - $3,000)
• Next day 
  • Max daily loss amount: $4,850 ($97,000 * 5%) 
  • Max daily loss equity trigger level: $92,150 ($97,000 - $4,850) 
  • Max daily profit equity trigger level $102,000 ($97,000 + $5,000)

Day 2 - The unrealized P&L continues to grow and reach a total of -$4,900

BREACH

• Unrealized profit/loss (P&L): - $4,900 
• Equity: $92,1000 ($97,000 - $4,900)
• Daily loss limit calculated amount: $4,850 (5% x $97,000 of  previous day Equity) 
• Daily Loss Limit trigger level: $92,150 ($97,000 - $4,850)
  
  
  

Example 3 - Unrealized P&L without registering new HWM Balance update

The Trader opens positions and ends Day 1 with unrealized (running) profit of +$8,000. The Trader is not realizing (closing) any of the open positions at the end of the day. 

• Unrealized profit/loss (P&L): +$8,000
• Equity at End of Day: +$108,000 ($100,000 + $8,000)
• End of Day Balance: $100,000 (the Trader did not close and realized any positions, hence the Balance of the account was not updated)
• HWM (High Watermark) tracking Balance:  $100,000 (since there were no closed trades and profit realized on the account the HWM tracking balance stays unchanged)
• Next day 
  • Max daily loss amount: $5,400 (5% * $108,000 (previous EoD Equity)
  • Max daily loss equity trigger level: $102,600 ($108,000 - $5,400, or 95% of $108,000 (previous End of Day Equity)
  • The Max DrawDown: $90,000 stays unchanged, since there is no new HWM Balance  

The Trader continued to trade the next day, however the market goes against him and the unrealized profit shrinks down to $2,800 (decreased with $5,200 for the day, but still within the allowed max daily loss of $5,400) 

• The daily swing as running loss of $5,200 decreasing unrealized PL to +$2,800 
• Equity at End of Day: +$102,800 ($100,000 +$8000 -$5,200)
• End of Day Balance: $100,000 (there were no closed positions, hence the Balance did not change)
• HWM (High Watermark) tracking Balance:  $100,000 (again stays unchanged)
• Next day 
  • Max daily loss amount: $5,140 (5% * $102,800 (previous EoD Equity)
  • Max daily loss equity trigger level: $97,660 ($102,800 - $5,140), or 95% of $102,800 (previous End of Day Equity)
  • The Max DrawDown: $90,000 stays unchanged, since there is no new HWM Balance