How is the maximum daily drawdown limit calculates? (Prop Specific)
Max Daily Loss is based on the initial account balance.
We will use a $100,000 Elite Challenge (8% Max Daily Loss) account for this example:
Initial Balance: $100,000
Daily Loss: 8% = $8,000
Starting point for this is the start of the day according to our Server/Platform. Max Daily Loss parameters reset every time our Server initiates a new day.
- Trader starts the day with a $100,000 balance, once the equity of the account reaches $92,000, rule would be breached and challenge would be failed
- Trader starts the day with $100,000 balance, If during the same day the trader grows the account to a $110,000 balance (meaning a $10,000 profit has been acquired), the lowest equity the account can reach is still $92,000.
- In this example the profit acquired during the day is useful as a buffer only for the current day allowing the trader to lose up to $18,000 from its highest balance point.
- Trader starts the day with a $110,000 balance, the max daily loss for the day is still $8,000 since its 8% of the initial account balance. If the account reaches a $102,000 equity the rule would be breached and challenge would be failed.
- Trader starts the day with a $98,000 balance, the max daily loss for the day is still $8,000 since its 8% of the initial account balance. If the account reaches a $90,000 equity the rule would be breached and challenge would be failed.
- Trader starts the day with a $150,000 balance, the max daily loss for the day is still $8,000 since its 8% of the initial account balance. If the account reaches a $142,000 equity the rule would be breached and challenge would be failed.
In this same day the trader may go down to $143,000 without losing the account. The next day the trader starts with a $143,000 balance and may go down to $136,000 without losing the account since $8,000 have not been lost. A $135,000 equity would breach the rule.
The next day trader starts with a $136,000 balance, it may go to $129,000 without losing the account since $8,000 have not been lost. This can go on day per day until the account reaches Max Overall Loss of $89,000 (11% of the initial balance account = -$11,000) and then the Max Overall rule would be breached and challenge would be failed.
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