A Guide to the Maximum Drawdown and Daily Loss Limits

In this guide, you will learn everything you need to know about the 5 types of Maximum Drawdown and 3 types of Daily Loss Limits utilized by online prop firms. Because of the slight variation in drawdowns, some traders struggle with certain evaluations more than others. But if you can adapt your risk management to the type of account you’re on, you really should not struggle in any case.

Some firms use their own terms for one or both of these rules to add to the confusion, so I will be including these alternate names as well.

The 5 Types of Maximum Drawdown

Regardless of the firm and the size of the account, there will be a hard limit for losses, usually called the maximum drawdown.

If you take losses reaching or exceeding this amount, in any funded futures account, it is considered a blown account. This should be self-explanatory; losing a significant portion of your account’s balance should never be allowed.

Some firms, such as ApexTraderFunding, call this “minimum account balance” the auto-liquidate threshold. If any of your open positions cause your balance to dip below this amount, you will instantly fail the account.

Static Drawdown

This is the most straightforward version of a static drawdown. If your account falls this far below the initial balance, you failed.

For example, in a $50,000 account with a $1,000 static drawdown, you fail if the balance drops below $49,000 at any time.

The static drawdown is the favorite for traders who prefer to “set and forget”. Even if they experience wild swings in unrealized profit (or loss) during their open positions, only the final result is evaluated. Futures prop firms typically set the static drawdown to about 1.75-2%.

This type of drawdown is found at a few firms including DayTraders, TradeDay, and BluSky Trading.

EOD Trailing Drawdown (End of Day)

This drawdown is similar to the static drawdown during the day. Regardless of your profits or losses, it does not move.

The difference is that at the end of the day, your account’s balance is evaluated. When your account balance is logged at the end of each day, if it’s a new peak, the EOD Trailing Drawdown moves up to accommodate it. Then, once the drawdown reaches your initial balance, it will stop moving upward.

For example, in the $50,000 account, your Max Drawdown might be set at $2,000, making your auto-liquidate threshold $48,000. Your peak balance would be your initial balance at the start of day 1, and would not update until you close the day with a higher balance. This might not happen for a long time if you start off with a few losses.

However, this drawdown does not move back down during losses. Therefore, you should still be careful with how you take losses once your drawdown begins moving upward at each new peak.

This type of drawdown is found at a few firms including DayTraders, TradeDay, and BluSky Trading.

Trailing Drawdown (Realized)

The Intraday Trailing Drawdowns are where the difficulty ramps up. This drawdown is similar to the EOD Trailing Drawdown, except it moves up progressively with the close of each trade. It is only found at one futures firm (so far), which is Funded Futures Network. They call this the “End of Trade Drawdown” on their site.

In the $100,000 account at Funded Futures Network, your Max Trailing Drawdown will start at $3,600. As you take trades, this drawdown will move up progressively, as seen in the chart below. Note that as your trades close with profit, the drawdown moves up, even though each of these trades may take place on the same day.

However, it can still get more difficult than this. With the Trailing Drawdown (Unrealized), you can still ignore the swings in your unrealized profits. You can’t do that as comfortably when the drawdown is trailing your unrealized gains.

Trailing Drawdown (Unrealized)

With the Trailing Drawdown (Unrealized), the drawdown is constantly adjusting as your unrealized profits increase. This means that if your account reaches a new peak in balance during a trade, you are effectively surrendering some of your drawdown regardless of how the trade finishes.

For example, during the OneUpTrader evaluation for the $50,000 account, the drawdown starts at $47,500. If you’re in an open trade, which moves $500 in your favor, your “auto-liquidate threshold” will move up $500 as well. At that moment, your balance will be $50,500, and your drawdown will be $48,000.

Then, the market moves against you, and you decide to close the trade with a $200 profit. Despite the realized gains, the drawdown will have moved up $500, to $48,000, where it will remain until your account balance moves beyond $50,500 again.

Once the drawdown reaches the initial balance of $50,000, it does not move up anymore.

Trailing Drawdown (Hardcore)

I call it Hardcore because it is the most aggressive type of trailing drawdown. It’s the same as the Trailing Drawdown (Unrealized), with one very important distinction. The drawdown level here does not stop once it reaches the account’s initial balance. Instead, it trails endlessly, staying the defined distance away from your account’s peak.

On a smaller account, this shouldn’t make a difference. Once you reach the profit target, the drawdown wouldn’t be significantly above the minimum balance, if at all. But for larger accounts, this can be disastrous if you are not careful.

For example, let’s say you’re trying the evaluation to earn the ApexTraderFunding $250,000 Rithmic account. For this account, the Profit Target is $15,000, and the Maximum Drawdown is $6,500. But because the Drawdown never stops trailing, it keeps constant pressure on you as you get closer to reaching your profit target. If you struggle to take your profits carefully, especially toward the end, you will risk failing the account despite being over $8,000 in profit.

Fortunately, this drawdown only exists in the evaluation at Apex Trader Funding. No funded account anywhere will enforce this strict of a rule.

Daily Loss Limit Types

Some accounts also feature a Daily Loss Limit. This is simply the maximum amount to lose in a single day, and it works in a few ways. I refer to them as either soft or hard limits.

Typically, this limit will be a static dollar amount, but there are a few subcategories of each.

Soft Limit

The soft daily loss limit is the point at which you can no longer place trades that day. If you lose this much in one trading session, you have to stop trading. Your positions are auto-liquidated, and if you try to trade more, the system will reject the order.

You are eligible to continue the next trading day.

Hard Limit

The hard limit is just like a secondary max drawdown. Don’t lose this much in a single day, or your positions will be auto-liquidated, and you will blow your evaluation/funded account. But there are a few variations of the hard daily loss limit.

Standard

The standard version is exactly as described above – if you hit this, you fail the account.

Some firms that use this include Earn2Trade and UProfit.lll.,

Auto-Reset

Similar to the Hard Limit, hitting this Daily Loss Limit will automatically reset your evaluation. The good news is, you are allowed to continue trading that same account on the same subscription, so it doesn’t cost you any extra money.

This is found only during the evaluation at BluSky Trading.

Trailing

The Hard Trailing Daily Loss Limit is one that is re-calculated at the close of each day. This is because the DLL is based on a percentage, rather than a dollar amount. As your account grows, the percent stays constant, meaning your DLL will actually trail your equity. Note that it will not move lower if your account drops below its initial balance.

This is found only at Blue Guardian Futures.

Did I miss something?

If you know of another drawdown or daily loss limit category that was not included here, please reach out via Discord so I can correct it.