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What Is a Daily Loss Limit

A daily loss limit is a rule set by many prop firms to cap the maximum amount a trader is allowed to lose in a single trading day. This rule is designed to limit damage from poor decision-making, emotional trading, or unexpected market movement. The limit is most often measured in dollars and is tracked from the trader’s highest equity point for the day. If the account falls below this amount, it will typically result in a soft breach, meaning the account will be locked for the remainder of the day but not terminated, as long as it remains above the overall max drawdown.

How the Rule Functions

The daily loss limit usually resets at the beginning of each new trading day. The definition of a trading day may differ between firms, with some using fixed exchange hours and others using platform-specific session cutoffs. When the loss limit is hit, most platforms will prevent further trading activity for the day, often by auto-liquidating positions and disabling the ability to enter new trades until the next session.

Firms calculate daily loss using real-time equity, which includes floating gains and losses on open trades. This means that a trader may breach the rule even if a trade eventually closes in profit. A drop in equity that exceeds the daily limit, even for a few seconds, can lock the account temporarily. However, in many cases, this is classified as a soft breach. The account is not closed, and the trader can resume trading the next day, provided that the account balance is still above the maximum trailing or static drawdown threshold.

Practical Risk Implications

For example, if a trader is operating a $50,000 account with a $1,000 daily loss limit and starts the day with $52,000 in equity, the lowest they can allow their account to fall is $51,000 for that trading day. If their open trade draws down to $50,900, even briefly, they would breach the daily limit. While this would result in a soft lockout for the day, the account would remain active unless the drop also triggered a violation of the trailing or max drawdown rule.

This distinction between a soft and hard breach is important. A soft breach restricts activity for the day and provides a chance to continue trading in future sessions. A hard breach, such as exceeding the trailing drawdown, will result in full account termination or disqualification. Traders should be aware of both limits and avoid approaching either too closely, particularly when using larger position sizes or trading during volatile sessions.

Varying Loss Limits Across Firms

Not all firms implement a daily loss limit, and those that do may set it based on account size, trader-selected plan, or account phase. Some firms provide fixed dollar thresholds, while others allow traders to select between more aggressive or conservative risk plans with varying daily parameters. In certain evaluation accounts, the firm may rely solely on a trailing drawdown and not enforce a daily cap.

In funded accounts, the daily loss limit is often enforced more consistently as part of long-term risk control. Some firms will display real-time warnings or alerts through the trading dashboard, while others provide no notice at all before the limit is hit. Traders must understand how and when the daily loss is enforced and whether it results in a temporary lockout or full account termination.

Summary

The daily loss limit is a risk safeguard that restricts how much a trader can lose in one day. It is typically enforced as a soft breach, which disables trading for the day but allows the account to remain active if it stays above the trailing or max drawdown. Real-time equity is used to track this rule, meaning both closed and open losses are factored in. The rule resets daily and may vary based on account type, firm, or selected plan. Understanding the difference between a soft and hard breach is key to managing risk effectively and continuing to trade with consistency and control.