What the rule does
A daily loss limit caps how much you may lose between one reset time and the next, commonly 4-5% of the account. Breach it and the account is usually closed immediately, in the evaluation and on the funded account alike.
It exists because a firm can model a slow bleed but not a single catastrophic session, and it is the most frequently triggered rule in prop trading — more accounts end on a daily limit than on the maximum drawdown, because the daily limit is smaller and arrives sooner.
Equity or closed balance
The single most important detail, and the one most often skipped.
An equity-based limit includes unrealised profit and loss. A position that is 3% underwater counts against your day even though you have not closed it, so a trade that later recovers can end the account before it does. On these accounts your open risk and your daily allowance are the same pool.
A balance-based limit only moves when a position closes. An open loser does not count until you realise it, which gives a swing trader room that the equity version does not — and hands a stubborn trader enough rope to lose the whole account in one position.
| Event on a $100,000 account, 5% limit | Equity basis | Balance basis |
|---|---|---|
| Closed losses of $3,000 | $3,000 used | $3,000 used |
| Plus an open position $2,500 down | $5,500 used — breached | $3,000 used — still trading |
| That position recovers to flat | Account already closed | No effect |
Equity-based is the stricter and the more common, particularly on futures accounts. If you cannot find which basis applies in the terms, ask support in writing before you trade — this is not a detail you want to discover experimentally.
When the day actually starts
The reset time is set by the firm, not by your calendar, and it is stated in a time zone that is probably not yours.
- Futures accounts commonly reset at 5pm New York, aligning with the CME session boundary.
- Forex and CFD accounts more often reset at midnight server time, frequently CET or EET.
- Both shift with daylight saving, and the US and Europe change on different dates, so for a few weeks each year the reset moves relative to your local clock.
Two practical consequences. A trader in Asia may find their "morning" session is on the previous trading day as far as the firm is concerned, which means yesterday's losses are still counting. And a losing session that ends at 4:50pm New York can be followed by a fresh allowance ten minutes later — which is not an opportunity, it is the single most reliable way to turn a bad day into a bad week.
Positions held across the reset
What happens to an open trade when the day rolls over is worth confirming, because the two conventions produce very different accounts.
At most firms with an equity-based limit, the new day's baseline is set from your equity at the reset moment — including any unrealised loss. A position carried across the boundary therefore starts the new day already down, and the loss counts twice in a practical sense: once against yesterday's allowance while it was open, and again as a lower starting point today.
A minority reset the baseline to the closed balance instead, which is friendlier to swing trading. If you hold overnight at all, find out which applies — and read it alongside the overnight and weekend rules, since the same firms tend to be strict about both.
A worked day
A $50,000 account with a 4% daily limit ($2,000) and an equity basis. The trader risks $250 per trade.
| Time | Event | Used | Remaining |
|---|---|---|---|
| 09:40 | Loss, −$250 | $250 | $1,750 |
| 10:15 | Loss, −$250 | $500 | $1,500 |
| 11:02 | Win, +$400 | $100 | $1,900 |
| 13:30 | Loss, −$250, and a second position $600 down, open | $950 | $1,050 |
| 14:10 | Open position now $1,300 down | $1,650 | $350 |
At 14:10 the trader has taken four small losses and one winner — an ordinary, unremarkable day — and has $350 of room left, all of it hostage to a single open position. Nothing was reckless. The arithmetic simply arrived faster than it felt like it should, which is what the rule is designed to do.
Set your own limit below theirs
The firm's daily limit is the point at which the account is destroyed. It is not a target, and it should never be the number you trade toward.
Set your own stop at roughly half of it — 2% where the firm allows 4% — and stop when you reach yours, for the day, with no recovery trade. That leaves the firm's limit as what it should be: a backstop you never touch, and the room to survive a genuinely bad fill.
The rule only works if it is written down with a number and applied without negotiation. "I will stop when I have lost enough" is not a rule; "I stop at $1,000, flat, and do not trade again until the reset" is. It belongs in the plan alongside your sizing formula — see trading plans that survive a challenge.
How it interacts with the maximum drawdown
The daily allowance is fresh each session. The maximum drawdown is not — yesterday's loss stays subtracted from it permanently.
That is why two ordinary daily losses in a row can leave an account close to the account-ending limit while the daily rule still shows a full allowance. On a 10% maximum drawdown with a 5% daily limit, two full daily losses ends the account outright, and there is no warning from the daily counter at all, because it reset.
Trade from the smaller of the two numbers, always: today's remaining daily allowance and today's remaining buffer to the maximum. The second is usually the binding one after any losing stretch, and it is the one the platform is least likely to show you. Position sizing against a drawdown has the routine.
What to confirm before you trade
- The percentage, and whether it is calculated on the starting balance or on the current balance.
- Equity or closed balance.
- The reset time and its time zone, and whether it observes daylight saving.
- What the baseline is for a position held across the reset.
- Whether a breach closes the account immediately or triggers a review.
- Whether the limit tightens on the funded account — several firms use a lower percentage there than in the evaluation.
Six answers, written into a note. It takes ten minutes and it prevents the most common way an otherwise sound evaluation ends: not a bad strategy, but a rule measured differently from how the trader assumed.