Prop firm drawdown rules explained
Updated October 2026
Most funded accounts are not lost to a bad strategy but to one rule: the daily loss limit or the max drawdown. This guide explains how both are measured, the difference between static and trailing drawdown, and how to work out how much you can still lose today.
Drawdown calculator
Firms differ in how they measure the daily limit (start-of-day balance, equity or the higher of the two) and when the day resets. This is an estimate; check your firm's rules.
The daily loss limit
The daily loss limit is the most you can lose in one trading day. The amount is usually a percentage of your initial account size, but it is measured from where you started the day.
Example: a $100,000 account with a 5% daily limit has $5,000 of daily room. If your balance was $102,000 when the day reset, your equity must stay above $97,000 until the next reset. If you started the day at $98,000, the line is $93,000.
- Floating losses count. Most firms check equity in real time, so an open trade can breach the limit before you close it.
- The day resets at a fixed server time, usually midnight on the firm's server (often CE(S)T). A loss at 23:50 and one at 00:10 fall on different days.
- Some firms use the higher of balance or equity at the reset. If you hold a winning trade overnight, your reference point is higher than your closed balance.
Static max drawdown
With a static (absolute) max loss, the floor never moves. It is your initial balance minus the max loss percentage.
Example: a $100,000 account with a 10% static max loss has a floor of $90,000. Grow the account to $112,000 and the floor is still $90,000, so profits give you more room.
Trailing max drawdown
With a trailing max loss, the floor moves up as your account makes new highs, and on most programs it stops once it reaches your starting balance. Firms trail either the highest balance, the highest equity, or the end-of-day balance, so read your firm's wording.
Example: a $100,000 account with a 6% trailing max loss starts with a floor of $94,000. When the balance peaks at $103,000 the floor rises to $97,000. Once the balance reaches $106,000 the floor locks at $100,000 and stays there.
The catch: after a good run, a pullback that would be harmless on a static account can end a trailing one. A trader at $103,000 who gives back $6,000 is at $97,000, exactly on the floor.
Which limit hits first
On any given day you have two limits, and the closer one is what matters.
Example: $100,000 account, 5% daily and 10% static max loss. You started today at $101,500 and your equity is now $100,800.
- Daily floor: $101,500 − $5,000 = $96,500, so you have $4,300 of room today.
- Max loss floor: $90,000, so you have $10,800 of room overall.
- You can lose $4,300 more today; the daily limit is the one that binds.
If the same account had a 10% trailing limit and had peaked at $103,000, the max loss floor would be $93,000 and your overall room $7,800.
How to stay inside the limits
- Size trades against the daily limit, not the account. Risking 1% per trade with a 5% daily limit means five losses in a row end the day; at 0.5% it takes ten.
- Set a personal stop at 50–70% of the daily limit. Stopping at a $3,000 loss leaves a buffer for slippage and spread widening.
- Know the reset time and avoid opening new risk right before it.
- Watch equity, not balance, while trades are open, especially around news.
- On trailing accounts, bank the first part of the target slowly; the floor follows your peak.
- Review your worst days. Most breaches come after two or three losses and a larger "make it back" trade.
Track it in your journal
TradeLog tracks your daily loss, max loss (static or trailing), profit target and minimum trading days on every prop account and warns you as you get close. Pick your firm and phase from the templates or enter your own rules. See the Prop firm rules compared and the Prop firm journal.