How to Avoid a Drawdown Breach
A drawdown breach happens when equity touches the daily or maximum loss level, and avoiding one starts with knowing exactly how your firm calculates each level.
A drawdown breach happens when account equity, including open trades, touches the daily or maximum loss level, and at many firms that ends the account on the spot. Avoiding one starts with knowing exactly where each level sits and how the firm calculates it, because two firms that both advertise a 5% daily limit can put the floor $1,000 apart on the same account. The rest is trading with personal limits set well inside the firm’s, so that a losing streak, a gap or a slow fill does not finish the account.
Know exactly where your limits are
Every drawdown rule answers the same five questions, and the answers decide where the floor sits each day.
- What the daily limit is measured from. Some firms use the balance at the daily reset, others the higher of balance or equity, and others the previous day’s closing balance.
- What the percentage applies to. A fixed share of the starting balance gives the same amount every day. A share of the current balance or equity changes as the account grows.
- Balance or equity. Most firms check equity, which includes open profit and loss, commissions and swaps, so a trade can breach the account before it closes.
- Static or trailing. A static maximum loss stays at the same level. A trailing one rises with the highest balance or equity, sometimes until it reaches the starting balance.
- When the day resets. The reset time and its time zone decide which losses count towards which day.
The difference between the two limits is set out in daily loss limit vs maximum drawdown, and trailing rules are covered in trailing vs static drawdown and end of day drawdown explained.
Worked example
This example uses a made up $100,000 account with a 5% daily limit. At the daily reset the closed balance is $103,000 and one open trade is $1,000 in profit, so equity is $104,000. Three imaginary firms calculate the next day’s floor in the three ways firms commonly use.
| Method | Calculation | Daily floor | Equity low of $98,900 the next day |
|---|---|---|---|
| 5% of the starting balance below the balance at the reset | $103,000 minus $5,000 | $98,000 | Within the limit |
| 5% of the starting balance below the higher of balance or equity | $104,000 minus $5,000 | $99,000 | Breach |
| 5% of the higher of balance or equity | $104,000 minus $5,200 | $98,800 | Within the limit |
The open trade that was $1,000 in profit at the reset raises the floor under the second and third methods. If that trade then reverses, giving back profit the trader never banked counts against the daily limit. Under the second method the account has only $4,000 of room below the closed balance, not $5,000.
The maximum loss works the same way over a longer period. With a static 10% limit, the floor stays at $90,000 however much the account makes. With a limit that trails the highest end of day balance by 10%, a balance of $104,000 at the reset moves the floor to $94,000, so a trader who is $4,000 up has $10,000 of room left rather than $14,000.
Set personal limits inside the firm’s
The firm’s limit is the point of failure, not a target. Personal limits set well inside it absorb the things a trader cannot control.
- Risk per trade. At 0.5% of a $100,000 account, or $500 a trade, ten losses in a row use $5,000. At 2%, three losses use $6,000 and would breach a 5% daily limit. The position size calculator converts a risk amount and stop distance into a lot size.
- A daily stop. Stop trading for the day at a set loss, such as 2%, measured from the highest of the day’s starting balance and equity. In the example above, a 2% stop from $104,000 is $102,000, which sits above all three floors with room for slippage.
- A buffer for costs. Commissions and swaps usually count towards equity, so leave room for them on large or overnight positions.
- A distance check before each trade. Work out where the floor is before entering, and size the trade so its stop cannot reach it. The drawdown calculator shows the current floor for common rule types.
Correlated positions deserve a separate check. Three trades on dollar pairs, or on gold and US indices during a US release, can behave like one large trade. Some firms cap the risk on a single trade idea, which maximum risk per trade rules explains, and the pass probability simulator shows how the chance of a breach changes with risk per trade.
How firms differ
The rules below were published by each firm in September 2026 for the products named. They vary by product and size, so read the rules for the exact account you hold.
| Firm and product | Daily loss | Maximum loss |
|---|---|---|
| FTMO 2 Step | 5% of the initial capital below the balance at 00:00 CE(S)T; equity counts open trades, swaps and commissions | 10% static |
| FTMO 1 Step | 3% of the initial capital, measured the same way | 10% below the highest end of day balance, rising only |
| The5ers High Stakes | 5% of the higher of the previous day’s closing balance or equity, at 00:00 server time | 10% static from the initial balance |
| Blue Guardian 2 Step Standard | 4% of the initial balance below the higher of balance or equity at the 5pm EST reset | 8% static |
| Titan Capital 2 Step | 4% of the initial balance, reset at 21:59 GMT; a hard breach | 10% of the initial balance; a hard breach |
| QT Funded QT One | 3% of the starting balance below the higher of the previous day’s closing balance or equity | 6% static |
| Topstep Trading Combine | Optional; if chosen, hitting it closes positions and stops trading until the next session without breaching the account | End of day trailing, enforced in real time on open and closed profit, locking at the starting balance |
Not every daily limit ends the account. At Apex Trader Funding, reaching the daily limit on an end of day evaluation closes open positions and pauses trading until the 6pm ET reset, and the account stays active. The5ers applies a 3% daily pause on Hyper Growth that stops trading for the rest of the day without closing the account. The difference is explained in soft breach vs hard breach, and firms without a daily limit are listed under prop firms with no daily drawdown.
Common mistakes
- Holding floating profit through the reset. Where the daily floor is set from equity, open profit at the reset raises the floor, and giving it back counts as a loss for the new day.
- Using the wrong time zone. A reset at 5pm EST, 00:00 CE(S)T or 21:59 GMT falls at different local times, and a loss either side of it counts towards a different day.
- Forgetting costs. Commissions and swaps reduce equity, and a position held for several nights can move the account closer to the floor without a price change.
- Treating a trailing limit as static. Once profit has lifted the floor, the room left is measured from the peak, not from the starting balance.
- Trading on after a near miss. A day that ends close to the floor often leads to larger trades the next day. A written daily stop removes the decision.
Checklist
- Write down the daily floor and maximum loss floor before the first trade each day.
- Know the reset time in your own time zone.
- Check whether open profit at the reset raises the next day’s floor.
- Keep risk per trade low enough that a long losing streak stays inside the daily limit.
- Set a personal daily stop well above the firm’s floor.
- Treat correlated positions as one trade when sizing.
- Confirm whether a daily breach is soft or hard at your firm.
A journal that records the floor each morning makes these checks routine, as described in how to keep a trading journal for a prop firm challenge, and the full sequence from purchase to payout is set out in how a prop firm challenge works. The wider reasons accounts are lost are covered in why traders fail prop firm challenges, firms with fixed floors are listed under prop firms with static drawdown, and more guides sit under passing the challenge.
Frequently Asked Questions
What counts as a drawdown breach?
A breach happens when equity reaches the daily loss level or the maximum loss level set by the firm. Most firms check equity in real time, so an open trade that dips below the floor breaches the account even if it would later recover. At firms such as Titan Capital both limits are hard breaches that end the evaluation.
Does the daily loss limit include open trades?
At most firms, yes. FTMO measures its daily loss against equity, which includes open profit and loss, swaps and commissions. Some firms, including The5ers on High Stakes and Blue Guardian, also set the day's starting point from the higher of balance or equity, so open profit held through the reset raises the floor for the next day.
How much should I risk per trade to avoid a breach?
The arithmetic is the guide. On a $100,000 account with a 5% daily limit, risking 0.5% a trade allows ten straight losses before the limit, while risking 2% a trade breaches it after three. Leave room for slippage, commissions and correlated positions, and check whether your firm also caps the risk on a single trade idea.
What is the difference between a static and a trailing maximum loss?
A static maximum loss stays at a fixed level, such as $90,000 on a $100,000 account with a 10% limit. A trailing one rises with the highest balance or equity. On FTMO's 1 Step, the floor sits 10% below the highest end of day balance and never falls, so profit made early reduces the room measured from the starting balance.
What happens after a drawdown breach?
A hard breach ends the evaluation or funded account, and the trader must buy a new one or pay for a reset where offered. A soft breach pauses trading instead. Apex Trader Funding, for example, closes positions and pauses trading until the next session when an end of day evaluation hits its daily limit, and the account stays active.
