How Prop Firm Daily Loss Limits work
The daily loss limit is the most common reason traders fail prop firm evaluations like FTMO or The5%ers. It is calculated dynamically based on your previous day's closing balance (typically at midnight CET or EST).
The Dynamic Calculation
Every day, your daily loss floor is reset using the following equation:
Daily Drawdown Floor = Previous Day Balance/Equity − (Previous Day Balance/Equity × Daily Limit %)
Warning: Many firms use the higher of previous day's balance or equity as the starting point. If you carry open trades into midnight with floating profits, your daily loss floor is set higher, which can lead to accidental breaches if those profits evaporate during the next day.