What Is Daily Drawdown and Max Loss in a Prop Firm Challenge?

Daily drawdown (daily loss limit) and max loss (overall loss limit) are the two most important risk rules in any prop trading challenge. If you violate either limit, you instantly fail the challenge — even if you’re profitable overall.

Daily Drawdown / Daily Loss Limit

The daily drawdown is the maximum you’re allowed to lose in a single trading day.

Example: On a $100,000 account with a 5% daily limit, you cannot lose more than $5,000 total in realized and floating losses for that calendar day, depending on the firm’s specific rules.

Max Loss / Overall Drawdown

The max loss is the total allowed drawdown from the initial balance (or from the highest equity, depending on the firm). If the account ever goes below that level, the account is breached.

Example: With a 10% max loss on a $100,000 account, equity can never drop below $90,000.

Why These Rules Exist

They protect the firm from excessive risk.
They test your ability to manage downside, not just generate upside.
They force discipline and prevent gambling behavior.

Tips to Avoid Violating Loss Limits

Size positions so one bad trade can’t kill the day.
Stop trading for the day if you approach 70–80% of the daily drawdown limit.
Track floating losses, not just closed P&L, because some firms count floating drawdown too.

Key Takeaway

Daily / Max loss rules are hard limits. Passing a prop firm challenge is not only about hitting the profit target — it’s about proving that you can survive without blowing up.