How is the daily loss limit calculated?

The daily loss limit is a percentage of the account balance at the start of the trading day. It resets at the beginning of each new day.

A worked example

On a $50,000 account with a 5% daily loss limit:

	Amount
Start-of-day balance	$50,000
Daily loss allowance	$2,500
Level that triggers a breach	$47,500

If the day begins at $52,000 because of previous profit, the allowance is calculated on $52,000 and the breach level becomes $49,400. Profit therefore widens the allowance in absolute terms.

Open positions count

The limit is measured against account equity, which includes unrealised profit and loss on open positions — not only closed trades. A position that is deeply underwater can breach the limit before you close it. This catches traders out more often than any other rule.

Practical implication

Set a personal stop well inside the published limit. If the limit is 5%, treating 3% as your own hard stop leaves room for a position to move against you while you exit in an orderly way. Trading right up to the limit means a normal spread widening can end the evaluation.