Daily loss is calculated as a percentage of your starting balance and is monitored in real time. If your equity drops below the daily threshold at any point during the day, the account is breached.
Overall drawdown is calculated from the initial balance (not from equity peaks), and it must not exceed the specified percentage limit.
Let’s say your account balance on Day 1 is $10,000 and the daily loss limit is 5%.
Day 1:
Allowed loss = 5% of $10,000 = $500
If your loss reaches $500, trading must stop for the day.
Suppose after trading, your balance is $9,500.
Day 2:
Allowed loss = 5% of $9,500 = $475
If your loss reaches $475 on Day 2, trading stops.
Assume your balance after Day 2 is $9,200.
Day 3:
Allowed loss = 5% of $9,200 = $460
And so on.
So, the daily loss limit is calculated based on the balance at the start of each day, not the initial account balance.