Daily loss limit: what it is and how it’s measured
By Bec, futures trader and founder of Wildflower · Updated
A daily loss limit is the most an account is allowed to lose in one trading day. The limit is measured from a starting point, such as the balance the day began with, and it starts fresh each day. What counts, when the day resets and what happens if you reach it are set by each firm’s own rules.
What a daily loss limit is
A The most an account is allowed to lose in one trading day. It starts fresh each day, and each firm sets how it’s measured.More in the glossary is a cap on how much a A proprietary trading firm: a company that lets traders trade its accounts under its own rules. Each firm sets how you get an account, such as by passing an evaluation.More in the glossary account can lose in a single trading day. If the day’s loss reaches it, the account breaks the rule for that day.
It sits alongside the account’s other loss rule, its maximum A fall in an account’s balance from a high point. On a funded account, it also names the loss limit the balance has to stay above.More in the glossary. That one covers the whole life of the account. The daily limit only covers today, and tomorrow it starts again.
All the numbers on this page are made up to show the idea. Say an account starts at $50,000 with a $1,000 daily loss limit. Each firm sets its own amount and its own rules, and they change, so check your firm’s own rules page.
In the pictures, each candle is the account’s balance over one stretch of the day, counting any trade that’s still open: where it opened, the highest and lowest it reached, and where it closed.
How a daily loss limit is measured, step by step
1. Start from the day’s balance
The day starts at $50,000, so the line sits $1,000 below, at $49,000.
2. Losses bring you closer
A trade closes for a loss. The balance is $49,600, so there’s $600 of room left.
3. Open trades can count
The next trade is open and losing. Counting it, the balance dips to $49,200.
4. The day ends
The day closes at $49,300: down $700, and inside the limit.
The limit counts the day’s whole result, not one trade. A win in the morning gives you more room in the afternoon, and a loss takes it away. What your broker and the exchange charge for each contract you trade, often quoted per contract for the round trip: in and out.More in the glossary come out of the balance too, so they count.
Do open trades count toward a daily loss limit?
Firms answer this in different ways, and it changes the result.
Open trades count. The day’s loss includes Profit or loss on a trade that’s still open. It becomes realised when the trade closes.More in the glossary on trades still open. If an open trade drags the balance to the line, the limit is reached, even if the trade comes back. In these two pictures, each candle ends when a trade closes.
Closed trades only. Only trades that have closed are counted. The same day, where the open trade dipped to $48,900 and then closed at $49,400, stays inside the limit.
Where the limit is measured from
From the day’s starting balance. The line is set once when the day begins and stays put. Profit during the day adds room.
From the day’s highest balance. Some limits follow the balance up during the day, like a A loss limit that sits a set amount below an account’s highest balance. It moves up with new highs and never moves down.More in the glossary that resets each morning. Profit made and then given back moves you closer to the line. On the same day, the first picture stays $800 inside the limit, and the second reaches it.
When the day resets
A daily limit needs a clear end to the day. Futures don’t run midnight to midnight. On CME, the Chicago exchange that lists stock index futures, the trading day for those futures starts at 5pm US Central time, the evening before. Each firm’s rules say when its day resets.
After the reset, the day starts again from the new balance. In the picture, a losing day left the balance at $49,400, so the new line is $48,400. The daily room is back to $1,000, but the account is still $600 down overall, and the maximum drawdown doesn’t reset.
What happens if you reach the daily loss limit
Each firm’s rules say what happens. Two kinds you’ll see:
- A pause for the day. Open trades are closed, and the account can’t trade again until the next day. The account itself carries on. Some people call this a soft limit.
- A failed account. Reaching the limit breaks a rule that ends the account, the same as reaching the maximum drawdown. Some people call this a hard limit.
An account may have no daily loss limit at all, or one during an evaluation and a different one once it’s funded. Your firm’s own rules page is the only place to check.
What counts, and what doesn’t
Reaching the line can count. A loss equal to the limit can break it, not only a bigger one. Your firm’s wording says which.
A dip can count, even if it recovers. Where open trades count, one moment at the line is enough.
Fees count. A day that’s $980 down before fees can be over $1,000 down after them.
Fills can go past the line. In a fast market, a trade closed at the line can fill a few ticks beyond it, so the loss can end up a little bigger than the limit.
The amounts are your firm’s. The size of the limit, what it’s measured from and what happens when it’s reached all vary. The numbers here are made up.
Often confused with
Trailing drawdown. A loss limit that follows the account’s highest balance up and carries on from day to day. Read about trailing drawdown.
Static drawdown. A line set once, at the start, that never moves. Read about static drawdown.
Consistency rule. A rule about how much of your total profit can come from one day. It limits a big winning day, not a losing one. Read about consistency rules.
Your own daily limit. Some traders also set a daily loss limit of their own, separate from the firm’s. It’s a personal rule, and the firm doesn’t enforce it.
Daily limits on Wildflower’s Bot
Set your own daily limits, and see your firm’s
When the Bot runs your strategy, you can set your own daily loss and daily profit limits on the account’s Your limits page. Once the day’s loss reaches your figure, it places no new trades for the rest of the trading day. A trade already open keeps its stop and target. The Guardrails panel’s daily loss meter shows how much of today’s allowance is used, after fees, against the lower of your own limit and the firm rule you entered from your firm’s own page. Every box starts empty, and you choose each figure. Your firm enforces its own limit separately.
Try it free on the practice chart. Only pay when you run it through your broker, on a demo or real account.
Common questions
What is a daily loss limit?
The most an account is allowed to lose in one trading day. It starts fresh each day.
Is the daily loss limit based on balance or equity?
It depends on the firm. Some count open trades (equity, the balance including open profit and loss), and some only count closed trades.
Do open trades count toward the daily loss limit?
On some accounts, yes: an open loss can reach the limit even if the trade recovers. On others, only closed trades count. More above.
When does the daily loss limit reset?
At the start of each trading day. For futures, the exchange’s trading day starts in the evening, but each firm sets its own reset time in its rules.
What happens if I hit the daily loss limit?
Your firm’s rules say. It can mean no more trading until the next day, or a failed account.
Does profit earlier in the day give me more room?
If the limit is measured from the day’s starting balance, yes. If it’s measured from the day’s high, profit given back counts against you.
Do fees count toward the daily loss limit?
Fees come out of the balance, and the limit is measured on the balance, so they count.
Is a daily loss limit the same as a trailing drawdown?
No. A daily loss limit only covers one day and starts fresh. A trailing drawdown carries on across days.
Can a loss go past the daily loss limit?
Yes. In a fast market a trade can fill beyond the line, so the day’s loss can end up a little bigger than the limit.