The two limits in a challenge
Most funded-account challenges set a maximum daily loss and a maximum drawdown, next to a profit target and often a time limit. You pass by reaching the target without breaking either limit. They are easy to confuse, but they work differently. The daily limit looks at one trading day. The drawdown looks at the whole attempt.
Firms differ and change their rules, so use the current terms of the firm you trade with. This guide uses no firm's rules, is not affiliated with any prop firm and is for education only. It is not financial advice.
The daily loss limit
The daily loss limit is a dollar amount: the limit percentage times a base. For some firms the base is the account size, for others it is the balance or equity at the start of the day. On a $100,000 account with a 5% limit measured from the account size the limit is $5,000, and the breach level is $95,000 if the day starts at $100,000. At 1% risk per trade a full loss costs $1,000, so the 5th full loss reaches the limit. The daily loss limit calculator shows how that count changes during the day.
Two details decide how much room you have: whether open (floating) profit and loss count, and when the day resets. Rules based on equity count open trades, so a position that is down by the limit can end the day before you close it. The reset time is set by the firm, often at a fixed time in one time zone.
The maximum drawdown: static or trailing
A static drawdown is a floor fixed at the starting balance minus the drawdown. With a 5% drawdown on $100,000 the floor is $95,000 for the whole attempt. Profit adds room, because the floor does not move.
A trailing drawdown measures from the highest balance reached. The floor equals that high minus the drawdown, rises with every new high and never falls back. The room above the floor is at most the drawdown amount, and giving back profit uses it up.
Static against trailing, on the same eight days
The chart and table use the same closing balances. The static floor stays at $95,000. The trailing floor rises with the highest close, to $98,500 after day 6.
| Day | Close | Static room | Trailing floor | Trailing room |
|---|---|---|---|---|
| 1 | $100,800 | $5,800 | $95,800 | $5,000 |
| 2 | $101,900 | $6,900 | $96,900 | $5,000 |
| 3 | $101,300 | $6,300 | $96,900 | $4,400 |
| 4 | $102,800 | $7,800 | $97,800 | $5,000 |
| 5 | $102,200 | $7,200 | $97,800 | $4,400 |
| 6 | $103,500 | $8,500 | $98,500 | $5,000 |
| 7 | $100,400 | $5,400 | $98,500 | $1,900 |
| 8 | $98,200 | $3,200 | $98,500 | Breach |
On day 8 the balance of $98,200 is still $1,800 below the starting value and $3,200 above the static floor, yet it is $300 through the trailing floor. The account that gave back profit from a high is the one that breaches. The trailing drawdown calculator lets you enter your own balances to see the same picture.
Balance, end-of-day and equity versions
- Balance-based trailing. The high is the highest closed-trade balance. Open profit does not raise the floor until it is realised.
- End-of-day trailing. The floor is updated only from the closing balance of each day, so intraday swings do not move it.
- Equity-based trailing. The high includes open profit during the session. It is the strictest version, because a position that runs in your favour and then reverses has already raised the floor.
The difference is easy to see with numbers. If an account closes at $101,000 after touching $103,500 during the day, a closing-balance rule puts the floor at $96,000 and an intraday-equity rule puts it at $98,500. That is $2,500 of room gone without a single closed loss.
Locks, and what they change
Some trailing rules stop moving once the floor reaches the starting balance. After that the floor is fixed, and the rule behaves like a static drawdown at the initial level. On the example account, a climb to $106,000 followed by a fall to $100,900 breaches an unlocked trailing floor at $101,000, while a locked floor stays at $100,000 and leaves $900 of room.
What this means for how you trade
- Know which version you have. The same balances can be safe under one rule and a breach under another. Read the current terms before you size a trade.
- Measure room in losses, not dollars. Divide the room above the floor by your risk per trade. With a trailing floor this number can shrink without a losing streak, because a give-back from the high also uses it.
- Treat open profit carefully under equity rules. Taking profit at the target locks the high. Letting a winner reverse can still cost room.
- Set a daily stop-trading line inside the daily limit. Not at it.
To see how much these rules change the chance of finishing a challenge, run the same edge under each rule in the prop firm challenge simulator. With the site's example edge (45% win rate, 1.5R winners, 1% risk, two trades a day, 10% target, 10% drawdown, 30 days), the static rule ends in a drawdown breach for 10% of simulated attempts and the trailing rule for 23%.
Try it with your own numbers
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Quick questions
What is the difference between a static and a trailing drawdown?
A static drawdown is a fixed floor at the starting balance minus the drawdown. A trailing drawdown follows the highest balance reached, so the floor rises with each new high and does not fall back.
Does the daily loss limit reset?
Yes. It applies to one trading day and resets at a time set by the firm. The maximum drawdown applies to the whole attempt and does not reset.
Do open trades count towards the limits?
In equity-based rules they do, so floating losses can breach a limit before you close the trade, and floating profit can raise a trailing floor. Balance-based rules count closed trades only. Check which applies.
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Last updated November 2026. For education only. Not financial advice.