What Is Daily Drawdown — And How Prop Firms Actually Calculate It

A trader closes Tuesday at 2,300 dollars up on a 100,000 dollar account, holds one position overnight, and is breached before London opens on Wednesday. Nothing about the trade was reckless. The position was 0.4 lots with a stop 30 pips away. What ended the account was arithmetic the trader had never actually worked through: which number the firm compares against, what it compares it to, and at what hour that comparison is reset.

Daily drawdown is the most misunderstood clause in prop-firm trading, and the misunderstanding is rarely about the percentage. Everyone knows the limit is 4 or 5 per cent. Almost nobody can say, from memory, what their own firm measures it from.

The three questions that define your limit

Every daily-loss rule is the same shape. A firm picks a reference point, picks a measurement, and picks a reset time. Change any one of the three and your usable risk budget changes with it.

1. 01Reference point. Start-of-day balance, start-of-day equity, or the highest equity reached during the day.
2. 02Measurement. Closed balance only, or equity including floating profit and loss on open positions.
3. 03Reset time. The server hour at which yesterday's counter is discarded and today's begins.

Get all three right and daily drawdown becomes a number you can compute before you place a trade. Get one wrong and you are trading against a limit you cannot see.

Reference point: start-of-day balance versus start-of-day equity

The most common structure, and the one most firms describe in their FAQ, uses start-of-day balance. At the reset hour the firm records your balance, multiplies by the limit, and that is your floor for the next 24 hours.

On a 100,000 dollar account with a 5 per cent daily limit and a start-of-day balance of 102,000:

start-of-day balance     102,000.00
daily limit (5%)           5,100.00
hard floor                 96,900.00

Everything you do that day is measured against 96,900. Profit you make during the day does not raise the floor. Bank 3,000 dollars by lunchtime and your floor is still 96,900 — you simply have more room above it.

The second structure uses start-of-day equity, which matters only when you hold positions through the reset. If you carry a trade that is 1,800 dollars in profit across the reset hour, a balance-based firm starts you at 102,000 and an equity-based firm starts you at 103,800. Those are different floors for the identical account, and the difference is exactly the floating profit you happened to be holding at that minute.

Measurement: this is where the overnight breach comes from

Almost every firm measures your equity, not your balance, against that floor — continuously, tick by tick. Floating loss on an open position counts the moment it exists. You do not have to close a trade to breach.

That is the whole explanation for the Wednesday-morning breach in the opening paragraph. The position was fine. The gap was not. Equity touched the floor at 03:40 server time while the trader was asleep, and the account was flagged before a human ever looked at the chart.

A second point worth stating plainly, because it is frequently misreported: the standard daily-loss calculation is a net equity drop from the reference point, not a sum of your losing trades. If you make 3,000 and lose 6,500 on the same day, most firms see a net 3,500 dollar drawdown against the floor, not a 6,500 dollar one. That is the common case as of September 2026 — but a handful of firms do compute the day differently, and it is exactly the sort of clause that gets rewritten between account generations. Read your own firm's current terms, and if the wording is ambiguous, ask support in writing and keep the reply.

Static, trailing, and the max-drawdown confusion

Traders often blur daily drawdown and maximum (overall) drawdown. They are separate limits with separate behaviour, and you can be comfortably inside one while a single trade breaches the other.

Static maximum drawdown is the friendlier of the two: a 10 per cent static limit on a 100,000 dollar account puts an unmovable floor at 90,000, and once you are 8,000 in profit you have 18,000 of room.

Trailing maximum drawdown follows your high-water mark upward and never comes back down. Reach 108,000 in equity and your floor rises to 98,000. Give back 10,000 from that peak and you are out, even though you are still 2,000 dollars above your starting balance. Some firms stop the trail once the account reaches its initial balance plus the drawdown amount; others trail the whole way; some trail on closed balance rather than equity, which makes an unrealised spike harmless. These variations are firm-specific and version-specific, so check the current terms for the exact account you hold rather than the version your friend bought last year.

The reset hour is a real trading constraint

The reset is usually quoted in the firm's server time, which is normally the same as the trading server's — often CE(S)T, sometimes New York close. Three practical consequences follow.

• Your day is not your local day. If the reset is 00:00 server time and your server sits at UTC+3, a trader in London hits a fresh daily limit at 21:00 or 22:00 local, in the middle of the New York afternoon. Plenty of accounts have been breached by a trader who thought they had a fresh budget and did not.
• A loss just before the reset costs you twice. Drop 3 per cent at 23:50 server time and you have spent most of today's budget for ten minutes of trading. Ten minutes later you have a clean slate. The same loss ten minutes earlier or later is a completely different constraint.
• Positions held through the reset inherit their floating P&L into the new day on equity-referenced firms, and have it ignored on balance-referenced firms. Know which one you are.

Building a buffer that actually holds

The limit is a cliff edge, not a target. Traders who last treat the published number as a hard boundary and trade to a self-imposed one well inside it.

A workable structure, using a 5 per cent published limit as an illustration:

1. 01Set a personal halt at 3 per cent. Two full percentage points of margin for the things you do not control.
2. 02Size so that no single trade can consume more than a third of the personal halt. At 3 per cent that means 1 per cent per trade, and three consecutive full stops before you stand down.
3. 03Cap concurrent risk, not just per-trade risk. Four correlated positions each risking 1 per cent are one 4 per cent trade wearing a disguise. Index CFDs and major pairs correlate far more tightly than the symbol names suggest.
4. 04Treat the last hour before reset as a separate session with its own, tighter limit — or do not trade it at all.
5. 05Decide the overnight question once. Either you never hold through the reset, or you hold only with the position at break-even and a hard stop attached. Deciding it per trade, at 22:40, is how the decision gets made badly.

The numbers above are illustrative and not a recommendation for any particular account; the structure is the point, not the percentages.

What software can and cannot do about it

An equity guard that halts new entries at a pre-set loss level removes the most common failure — the trader who was in a meeting, or asleep, or simply did not check. A guard that also monitors floating equity rather than closed balance is the version that helps, because floating equity is what the firm is watching.

What no tool removes is the gap risk. If price jumps through your stop, the loss is realised at the gap, and no piece of software sitting on a terminal changes that. Position size is the only real control over gap exposure, which is why the overnight decision belongs to sizing rather than to automation.

If you run one strategy across several funded accounts, note that each firm evaluates its own floor against its own reset hour. Normalised percentage risk keeps every account approaching its limit at the same rate, which is what you want — but the guards still have to be configured per account, because the floors are different numbers on different clocks.

Where this fits

If you want the behavioural side of the same rule — the three scenarios that breach accounts and how to stop overriding your own halt — read daily-drawdown-rules, which covers the discipline layer this post deliberately leaves alone. For the multi-account version of the arithmetic, where several floors on several clocks have to be respected at once, prop-firm-copier-sizing-across-accounts carries the sizing maths across accounts of different sizes.