What is the difference between a daily loss limit and a drawdown limit?

A daily loss limit measures against the equity the day started with and resets at midnight, so it caps how bad one day can get. A floating drawdown limit measures open losses against the balance at any moment, with no reset, so it acts while positions are still open regardless of when they were opened.

What is a sensible daily loss limit?

For most retail accounts, somewhere between 3 and 6 per cent of the day's opening equity. Lower than about 2 per cent and normal fluctuation will trip it constantly; above 10 per cent and it stops being a limit in any meaningful sense.

Why do EAs ship with these limits switched off?

Partly because a limit that fires unexpectedly looks like a fault to a new buyer, and partly because the right number depends on the account. It is still the wrong default. Switch them on before the first live trade and pick numbers deliberately.

Does a limit close my open positions or just stop new ones?

That depends on the EA and it is the single most important thing to check. A limit that only blocks new entries leaves an existing losing basket open and growing. One that closes everything and then pauses is the version that actually caps the loss.

Daily Loss and Drawdown Limits: The Settings That Cap Real Risk

A stop loss bounds a trade. It does not bound an account, and on any strategy that holds several positions at once the difference is the whole risk. The two settings that do bound an account are a daily loss limit and a floating drawdown limit, and they behave differently enough that using one is not the same as using both.

Last updated 3 October 2026

Why a stop loss is not enough

A stop loss applies to one position. If a strategy holds one position at a time, the stop is your risk limit and this article is unnecessary.

If it holds several — a grid, a basket, several pairs at once — the stop caps each of them separately while the account carries the sum. Twelve positions at increasing size, each with the same stop in pips, do not lose the same amount; the later ones are far larger, and the total is a multiple of the number in the settings.

That is why the two account-level limits exist, and why a strategy without either has a real maximum loss of "the account".

Daily loss limit

What it measures: the fall from the equity the trading day opened with.

When it resets: at the start of the next trading day, on the server's clock.

What it is for: bounding a single bad day, and stopping the pattern where a strategy spends the afternoon trying to recover the morning.

The reference point is the important detail. Measured against the day's opening equity, a 5 per cent limit means the same thing whether the account is up or down over the month. Measured against the balance instead, it quietly gets looser as the account grows and tighter as it shrinks, which is backwards.

A reasonable starting range is 3 to 6 per cent. Set it against how much of a bad day you can watch without intervening, not against what the backtest says was never needed.

Floating drawdown limit

What it measures: open, unrealised loss against the account balance, right now.

When it resets: it does not. It is a live condition, not a daily budget.

What it is for: the slow disaster. A basket that has been open for four days and is gradually getting worse may never trip a daily limit, because no single day was bad enough. The floating limit does not care how long it took.

Set it wider than the daily limit — roughly twice, so 8 to 12 per cent against a 4 to 6 per cent daily — because it is the outer fence rather than the first one.

The question to ask about either: what does it do when it fires?

There are two implementations and they are not equivalent.

Blocks new entries only. The existing positions stay open. If the reason the limit fired is an open basket in trouble, this does nothing about the actual problem: the loss continues, it simply stops being added to.

Closes everything, then pauses. The loss is realised at the limit and the account stops where you said it should stop.

Only the second one caps anything. Read the manual, and if it is not explicit, test it on a demo by setting the limit deliberately tight and watching what happens.

Choosing numbers you will actually keep

The limits that get switched off after two weeks are the ones set from optimism rather than from what the account is for.

Start from the money, not the percentage. Decide what a bad day is allowed to cost in currency, then convert to a percentage of the balance.
Check it against normal fluctuation. Look at the backtest's typical daily swing. A limit inside that range will fire on ordinary days and you will turn it off.
Leave the limits alone after a loss. Widening a limit because it fired is how the limit stops existing. If it fires too often, the position size is wrong, not the limit.

A monthly target is a different tool

Some EAs offer a monthly profit target that closes everything and pauses until the next month. It is not a risk control — it caps the upside, not the downside — but it has a use: it stops a strategy giving back a good month in the last week of it.

Worth having if you have watched that happen. Not a substitute for either limit above.

On our own EA

Forex Success AI has all three: a daily loss limit measured against the day's opening equity, a floating drawdown limit against balance, and an optional monthly profit target. All three close open positions and pause rather than merely blocking entries.

They ship switched off, which is the industry habit and, on reflection, the wrong one. Switch the first two on before the first live trade. Defaults of 4.5 per cent daily and 9.5 per cent floating are a sane place to start and are what the shipped values use once enabled.

For how a basket reaches those limits in the first place, see grid vs martingale. For sizing the account so the limits are rarely tested, the lot size calculator starts from the balance.