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    Prop firm challenges

    Prop firm drawdown rules explained: daily, max, static and trailing

    How prop firms measure daily and maximum drawdown — static, trailing and end-of-day trailing — with worked examples and the habits that keep you inside the limits.

    Updated October 7, 2026

    Static vs trailing maximum loss: an example
    • Account equity
    • Trailing limit (10% below the peak)
    • Static limit (10% below the start)
    85K 90K 95K 100K 105K 110K 12345678910 Trading day Account equity Trailing limit (10% below the peak) Static limit (10% below the start) Peak 108,000 Peak 108,000 Trailing limit breached Trailing limit breached

    Illustration on a 100,000 account. After equity peaks at 108,000 the trailing limit has moved up to 98,000, so the fall to 97,500 breaches it while the static limit stays at 90,000.

    Gain needed to recover from a loss
    0% 100% 200% 300% 400% 0%20%40%60%80% Loss on the account Gain needed −20% → +25% −20% → +25% −50% → +100% −50% → +100% −75% → +300% −75% → +300%

    Gain needed = loss ÷ (1 − loss). The deeper the drawdown, the steeper the climb back.

    Two limits, checked all the time

    Almost every prop firm challenge has two loss limits. The daily loss limit caps how much you can lose in one trading day; the maximum loss limit caps how far the account can fall overall. Touch either one and the account is usually closed — and at many firms floating losses on open trades count too, not just closed trades. The rules below are the common patterns; every firm words them a little differently, so read the exact text before you trade.

    The daily loss limit

    The daily limit is measured from a reference level at the start of each trading day, usually reset at a fixed time in a stated time zone. Firms differ in two ways:

    • What the percentage is applied to. Some apply it to the initial account size (5% of $100,000 is always $5,000); others to the day’s starting balance or equity.
    • Where the day starts. The reference can be the balance at the start of the day, the equity, or whichever of the two is higher. If you hold a position overnight with a floating profit, a “higher of balance and equity” rule starts the day from that floating profit — so giving it back can count as a daily loss.

    Example. A $100,000 account has a daily limit of 5% of the initial balance, and the day starts from the balance. You start the day at $102,000, so your equity must stay above $102,000 − $5,000 = $97,000 for the whole day.

    The maximum loss limit

    • Static: a fixed floor below the initial balance. With 10% on $100,000 the floor is $90,000, whatever happens later.
    • Trailing: the floor follows the highest balance or equity you reach. With a $5,000 trailing limit, a peak of $104,000 lifts the floor from $95,000 to $99,000 — profits you have not withdrawn are still at risk. Many firms stop trailing once the floor reaches the initial balance.
    • End-of-day trailing: the same idea, but the floor moves only when the trading day closes, based on the end-of-day balance. Swings during the day do not raise it.

    Futures evaluations often state trailing limits in dollars; forex and CFD challenges more often use a static maximum loss in percent.

    Which floor applies

    At any moment the stricter of the two floors — the higher number — is the one that ends the challenge. Early in a challenge the daily floor is usually closer. After a good run under a trailing rule, the maximum floor can overtake it.

    Habits that keep you inside the limits

    • Size every position so that a full stop-out costs only a fraction of the daily limit — for example, a quarter of it.
    • Know the reset time, and remember that open trades may count with their floating loss.
    • Recalculate the trailing floor after every winning day, not just once at the start.
    • Losses need a bigger gain to recover: after a 10% loss you need about 11% just to get back to where you started.

    The calculators linked from this guide work out the floors for your own numbers and simulate how often a strategy hits them.