A daily loss limit is the maximum amount of money a trader is allowed or willing to lose during one trading day. Once the limit is reached, the trader should stop trading. A prop firm or trading platform may close open positions, block new trades, lock the account or mark it as failed.
Daily loss limits appear in personal trading plans, proprietary trading firm evaluations, broker platforms and institutional risk-management systems. Firms can apply them by instrument, asset class or strategy, then reduce positions or stop trading when the limit is breached.
Daily Loss Limit at a Glance
| Feature | What it means |
|---|---|
| Purpose | Limits the damage from one losing trading session |
| Measurement | Usually a dollar amount or percentage |
| Account types | Personal, broker, prop firm or institutional |
| Losses counted | Realised losses, floating losses, fees and swaps, depending on the rules |
| When it applies | During one defined trading session |
| Consequence | Stop trading, close positions, lock the account or fail the account |
| Reset time | Varies by platform or trading firm |
How Does a Daily Loss Limit Work?
A daily loss limit sets the maximum loss for one trading session.
For example:
- Account balance: $10,000
- Daily loss limit: 2%
- Maximum daily loss: $200
- Trading must stop when the account reaches the threshold
The calculation is:
Daily loss limit = account value × permitted loss percentage
A daily loss limit is different from a stop-loss order. A stop-loss controls the loss on one trade. A daily loss limit controls the combined loss from all trades during the session.
A trader could lose $75 on one trade, $50 on another and $75 on a third trade. The total loss would be $200, reaching the example limit even though no single trade lost more than $75.
What Is a Prop Firm Daily Loss Limit?
A prop firm daily loss limit restricts how much a challenge or funded account can lose during one trading day.
The firm may calculate the limit from:
- The account balance at the start of the day
- The account equity at the start of the day
- The previous day's closing balance
- A fixed percentage of the initial account size
- The highest balance or equity reached during a defined period
The distinction is whether the firm measures balance or equity.
- Balance generally reflects closed trade results.
- Equity includes the account balance plus the floating profit or loss from open positions.
If a firm uses equity, an open trade can breach the limit before the trade is closed. FTMO's published rules, for example, define equity using balance, open-position profit or loss, swaps and commissions. FTMO also recalculates its daily loss threshold at a specified daily reset time.
Example of a Prop Firm Daily Loss Limit
Suppose a $100,000 evaluation account has a 5% daily loss limit.
- Permitted daily loss: $5,000
- Daily equity floor: $95,000
- Breach point: equity below $95,000
The account could breach the rule with:
- $4,000 in closed losses
- $1,000 in floating losses
- $200 in commissions and swaps
The calculation depends on the firm's terms. Before trading, check the reference balance, reset time, treatment of open positions, commissions, swaps and the consequence of a breach.
What Happens When the Daily Loss Limit Is Reached?
The consequence depends on the account provider.
A personal trading plan usually requires the trader to stop opening new positions for the rest of the session. A platform may close positions and prevent further trading. A prop firm may impose a temporary lockout or permanently fail the account.
FTMO distinguishes between soft and hard loss-limit violations. A soft violation can close positions and lock the account until the next trading session. A hard violation can close the account and end the evaluation. Other firms use different procedures.
How Is a Daily Loss Limit Different From Maximum Drawdown?
| Rule | What it controls | Does it reset daily? |
|---|---|---|
| Per-trade stop-loss | Loss on one position | No |
| Daily loss limit | Combined loss during one trading day | Usually |
| Maximum drawdown | Total decline from an account reference point | Usually no |
| Daily price limit | How far a market price may move during one session | Set by the exchange |
A maximum drawdown is an account-level loss limit that usually covers a longer period than one day. It may be static or trailing.
A daily price limit is not an account-loss rule. It restricts how far the price of a futures contract or another exchange-traded product can move during a session. CME Group uses price limits and circuit breakers to manage extreme market movements, but these limits do not cap the amount of money a trader can lose.
How Should a Trader Set a Personal Daily Loss Limit?
Set the limit using both account size and planned risk per trade.
For example:
- Account size: $10,000
- Planned risk per trade: $100
- Maximum number of full losses: 3
- Personal daily loss limit: $300
This is an example, not a universal rule. The appropriate limit depends on the strategy, market volatility, leverage, trading frequency and risk tolerance. CME Group recommends including intended leverage, maximum trade loss and maximum day loss in a written trading plan.
A personal limit should usually be below any external prop firm or broker limit. The buffer helps cover slippage, commissions, spreads and floating losses.
What Should You Check Before Trading?
Before trading, confirm four details:
- What amount or percentage triggers the limit?
- Are open losses included?
- When does the trading day reset?
- Does reaching the limit pause trading or fail the account?
A daily loss limit is a session-level circuit breaker. The name is simple, but the calculation method determines how it affects the account.