Daily Drawdown vs Maximum Drawdown: How to Read the Rules

Daily drawdown and maximum drawdown often appear next to each other in a comparison table. The percentages are useful, but they describe only part of the risk rules. Before trading, identify the formula, the values it uses and the moment at which the threshold changes. Firms may use different names for similar concepts, and different products within one firm may use different calculations.

Understand the daily threshold

In a simple arithmetic example, 5% of a $10,000 starting amount is $500. That calculation alone does not establish the account's minimum permitted equity. The actual rule may also depend on the balance at a daily reset and on open trades. Treat the example as arithmetic, then read the firm's formula for the exact account you are evaluating.

Check whether total loss is fixed or trailing

A fixed threshold and a trailing threshold can behave differently even when their stated percentages match. For a trailing limit, ask whether it updates continuously or at the end of the day, whether it follows balance or equity, and whether it stops moving at a defined level. Also check what happens after a reward withdrawal or account replacement.

Write down the reset time

An open position may cross a daily reset while floating profit or loss changes. Record the published time zone and account for daylight-saving changes where applicable. Compare it with the platform clock. Include commissions and swaps according to the program's documentation, rather than assuming the number shown in one screen is the entire calculation.

Build a small rules checklist

Keep four items together: the daily-loss formula, the total-loss formula, the update time and the components of equity. Save the source URL and verification date. If support explains a specific scenario, retain that response and identify the product it concerns. A clear record is easier to revisit than relying on a percentage remembered from another account or an old promotion.

Worked example: a fixed overall floor

Consider a purely hypothetical $10,000 account with a fixed 10% total-loss floor based on its initial amount. The floor would be $9,000. If the current equity is $10,300, the distance to that floor is $1,300. If equity falls to $9,400, the distance is only $400. The original percentage has not changed, but the remaining buffer has. This example demonstrates arithmetic only; it is not a statement of any firm's breach formula or a suggested risk allocation.

Worked example: a trailing floor

Now imagine a different hypothetical account whose floor stays $1,000 below its end-of-day high-water mark. A high-water mark of $10,000 produces a $9,000 floor. After a qualifying close at $10,800, the floor moves to $9,800. If the next day's equity is $10,100, the buffer is $300. A later losing day would not lower the floor in this example. Some real products lock the trail at a specified level or reset after withdrawals; those details must come from the exact account documentation.

Balance and equity are different inputs

Balance generally reflects completed account transactions, while equity also reflects floating results on open positions. For a hypothetical balance of $10,000 and floating loss of $250, equity would be $9,750 before any additional adjustments. A rule enforced against equity can therefore be reached while every open position is still active. Verify how the firm includes commissions, swaps and other charges, and which dashboard field is used for real-time monitoring.

End-of-day updates do not imply end-of-day enforcement

The time when a threshold moves and the time when it is checked are separate questions. An end-of-day trailing limit can remain fixed during a session while still being enforced continuously against current equity. Waiting for the closing balance to recover may not undo an intraday breach. When reading a policy, highlight the sentence describing threshold updates and the sentence describing enforcement; do not assume they are the same.

A withdrawal can change the available buffer

Suppose a hypothetical account has $10,700 of equity and a $10,000 floor. If a $500 withdrawal reduces equity while the floor stays unchanged, only $200 remains above it. This is why a reward amount and the buffer needed to continue trading should be considered together. The actual effect depends on whether the product preserves, resets or locks its drawdown threshold after a reward.

Questions to resolve before the first trade

• Does the daily rule use starting balance, previous closing balance, previous closing equity or the higher of two values?
• Is the overall floor fixed, intraday trailing or end-of-day trailing? Where does the trail stop?
• Is touching the threshold a breach, or does the documentation specify falling below it?
• What time zone controls resets, and does daylight saving change the local time?
• How do open positions, commissions, swaps and reward withdrawals affect the calculation?

Put the answers beside the official worked example for your account. A familiar percentage becomes useful only after you understand the complete calculation and can identify the remaining buffer in the trading interface.

Sources

FTMO Trading Objectives and worked examples

FundedNext program rules