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What Is a Negative P&L Rule

The negative P&L rule is a risk management policy applied in some funded accounts that limits the amount of unrealized loss a trader can incur on any single open trade. The rule is based on the account's profit balance at the start of the trading day and sets a threshold, typically 30 percent, beyond which the open loss on any individual trade must not exceed. It is not a daily loss limit but a per-trade control designed to prevent excessive risk from being concentrated in one position.

How the Rule Works

At the beginning of each trading day, the trader’s profit balance is used to calculate the maximum allowable unrealized loss per trade. For example, if an account has $8,000 in profit at the start of the day, then 30 percent of that amount, or $2,400, is the maximum open loss permitted on any single position. Traders may have multiple trades open, and losses can be spread across them, but no individual trade may exceed the defined loss threshold while it remains active.

This limit is monitored in real time. If the unrealized loss on any one trade surpasses the threshold, it is considered a violation. However, the trade is not automatically closed. In most cases, the trader receives a warning and may be subject to account review. The intent of this rule is to enforce trade-by-trade discipline and prevent outsized, uncontrolled losses from affecting the account.

Special Conditions for New Accounts

For accounts that are new or have not yet generated profit, the rule is based on the account's starting trailing drawdown amount. For example, if the account has a $2,500 trailing threshold, then the per-trade unrealized loss limit would be 30 percent of that amount, or $750. Once the account has grown past the trailing threshold and the trailing drawdown stops moving, the rule shifts to use the profit balance at the start of the day as the basis for calculating the per-trade limit.

In some cases, when a trader has doubled the safety buffer or reached a significant profit level, the per-trade drawdown limit may increase to 50 percent of the starting profit for the day.

Managing Breaches

Accidentally exceeding the limit does not immediately lead to penalties, especially if the breach is minor and the trader takes action quickly. For instance, if the loss reaches 32 percent and the position is closed or adjusted promptly, the account may not be penalized. However, repeated or blatant violations may lead to more serious consequences. These can include removal of profits earned during the violation, loss of payout eligibility, and permanent closure of the account.

Traders are expected to monitor their real-time exposure and actively manage positions to remain within the defined per-trade risk boundaries. A first violation will typically result in a written warning. Any future violations may lead to stricter review or permanent disqualification.

Summary

The negative P&L rule limits the open unrealized loss on any individual trade to a set percentage, usually 30 percent, of the profit balance at the start of the day. It is a per-trade limit that applies during funded stages and is enforced in real time. For new or break-even accounts, the rule is based on the starting trailing drawdown rather than profit. Minor breaches that are corrected immediately may not result in penalties, but repeated violations can lead to lost payouts or permanent account closure. Traders must manage positions carefully and stay within this rule to maintain compliance and protect their funded status.