What is Daily Drawdown and how is it calculated?
Daily Drawdown is calculated from your equity, not just your balance.
What is Equity?
Equity represents the current, real-time value of your trading account. It includes both your balance and any unrealized (floating) profits or losses from open positions.
Equity Formula:
Equity = Balance + Floating Profits - Floating Losses
Components explained:
- Balance: The amount in your account when there are no open trades. If you close all trades, equity becomes your new balance.
- Floating Profits/Losses: The total unrealized P&L from all open positions. This fluctuates with market movements.
Example: If your balance is $1,200 and you have two open trades — one with +$15 floating profit and another with -$10 floating loss — your equity is $1,205 ($1,200 + $15 - $10).
Daily Drawdown Rule:
The daily drawdown limit is 5% of your equity at the start of the trading day (midnight UTC). If your equity drops below this level at any point during the day — even momentarily due to floating losses — you breach the rule.
Example:
- Starting equity at midnight UTC: $10,000
- Daily drawdown limit: $500 (5%)
- Breach level: $9,500
- If your equity drops to $9,499 at any point, the challenge fails.
Important: The daily drawdown resets every day at midnight UTC based on your equity at that moment.
