Daily and max drawdown at prop firms: how they work and how not to break them

Most prop firm challenges aren't failed by missing the target but by hitting a loss limit. Understanding exactly how each one is calculated is half the job. Rules vary between firms, so always read yours, but nearly all follow one of these models.

Max daily loss

The most you can lose in one day, usually a percentage (for example 5%) of the initial balance or of the balance the day started with. Careful: many firms also count open trades (equity), not just closed ones.

Example: a $100,000 account with a 5% daily limit → you can't drop below $95,000 that day, floating P&L included.

Static max drawdown

A fixed floor that never moves, for example 10% of the initial balance: with $100,000 the account can never go below $90,000, even after you've made money.

Trailing drawdown

Very common in futures. The limit moves up with your peak (balance or equity, depending on the firm) and usually locks once you reach a certain level. If you make $1,500 and then give $1,500 back, you may have used up your whole buffer while sitting at the same balance you started with.

How not to break them

• Risk little per trade: at 0.5% you need 10 losses in a row to lose 5%.
• Set your own daily limit below the firm's (for example half of it) and stop when you hit it.
• Count floating P&L: don't let an open trade drag you close to the limit.
• With trailing, protect profits: after a good day, cut risk until the limit locks.

Practise before paying

In Katanith you can set your prop firm's rules on each account, see how much room you have left every day and simulate with your real history how often you'd have passed the challenge with each firm.