# Daily Drawdown

"**Daily Drawdown**" is a critical rule and it's set at either **4% of your initial account** balance, **or at the amount you customize** during your challenge purchase. The sum of all your positions (both closed and open) for the day must not hit or exceed this "Daily Drawdown". **If you end the day with losses totaling more than this limit, it's considered a rule violation.**

Importantly, the "Daily Drawdown" moves in sync with the initial balance of each new trading day. Every midnight (S**ummer server time: GMT+3, Winter server time GMT+2)**, **it resets to the initial percentage limit (e.g., 4%) of the account balance at that moment.**

Max Drawdown

The "**Max Drawdown**" feature works a bit differently on the One-Step Challenge and the Two-Step Challenge. Unlike "Daily Drawdown", which resets daily, "**Max Drawdown" considers all your open and closed profits/losses over time.**

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*Please read the following section for an explanation of each type of maximum drawdown.*

**Two-Step Challenge Drawdowns**

# How our Balance Based Drawdown works?

In the Two-Step Challenge, there are two types of drawdowns: daily drawdown and max drawdown.

The max drawdown is static and is calculated from the initial balance of your account. For example, if you have a $100,000 account and your max drawdown is 8%, you can never exceed the $92,000 balance. Breaching this threshold means you fail the challenge. This amount remains constant throughout the challenge. If you maintain a balance above $92,000, you will not breach the challenge due to max drawdown.

However, there is also a daily drawdown that is calculated from the initial balance of the day. For instance, if you set it at 4%, on the first day of trading, your daily drawdown will be $4,000, setting your balance at $96,000.

If you make a profit of $2,000 and your balance is $102,000 at the beginning of the next day, your max drawdown remains the same at $92,000. However, your daily drawdown is 4% of the initial balance of the new day, totaling $4,080, so it is set at $97,920.

Unlike in the One-Step Challenge, you can never breach your account by withdrawal. For instance, if you withdraw your full $2,000 profit in this case, your initial balance the next day will be $100,000, so your daily drawdown will be calculated from this, so it will be $96 000 and your max drawdown will remain at $92,000.

**Scenario 1**

**Profit without crossing the Daily Drawdown**

The trader starts trading with a $100,000 account and makes a $102,000 profit during the first day. Then, over the next 3 days of trading, he lose $300 each day, but his equity never falls below this loss of $100 each day. Each day, their daily drawdown will be calculated from the initial balance, and the max drawdown will be set at $92,000 with an 8% max drawdown.

Their max daily drawdown will be between $97,632 and $97,920, so his account will be fine, and he will be able to request a payout.

**Scenario 2**

**Profit after crossing Daily Drawdown but not Max Drawdown**

The trader starts trading with a $100,000 account and makes a $3,000 profit during the first day. On the second day of trading, his daily drawdown will be calculated from the initial balance of the day, $103,000, setting it at $98,880.

During the second day, he enters three trades, each with a stop loss that would result in a loss of $1,500. The first two trades are losses, and the third one also results in a loss. Once the equity of his account hits $98,880 when his third trade goes into the negative, **his account will be breached due to the daily drawdown.**

**Scenario 3**

**Loss without crossing Daily Drawdown**

The trader starts trading with a $100,000 account and loses $2,100 during the first day of trading. The daily drawdown is set at 4% of the initial balance, totaling $4,000, setting it at $96,000. His max drawdown is set at 8% of the initial balance and remains unchanged at $92,000. Hes has not breached either yet.

However, the trader loses $2,100 every day for the next 3 days of trading. On the last day, once the equity falls below $92,000, even though the trader has not breached the daily drawdown, he breaches the max drawdown, resulting in a failed challenge.

**One-Step Challenge Drawdowns**

# How our Trailing Drawdown works?

In our One-Step challenges, the Max Drawdown is "Trailing," which means it is calculated differently than the regular Max Drawdown in Two-Step challenges. The daily drawdown remains the same; it is still calculated from the day’s initial balance.

If your daily drawdown is 3%, it will always be calculated from the day’s initial balance. For example, if your initial balance on Tuesday was $102,000, your daily drawdown will be $98,940.The trailing drawdown is calculated from the highest balance of your account. The difference between normal max drawdown and trailing drawdown is that the trailing drawdown changes with the highest balance on your account.

For example, at the beginning, your highest balance on your account is $100,000. Your trailing max drawdown is calculated from this. So if your trailing max drawdown is 6%, that is 6% of $100,000, which is $6,000, and the trailing max drawdown will be set at $94,000.If your highest balance reaches $103,000, the trailing max drawdown is set at 6% of it. 6% of $103,000 is $6,180, so your trailing max drawdown will be $96,820.

However, the max trailing drawdown can never exceed your initial balance value. If you bought a $100,000 Challenge and your highest balance reaches $108,000, your max drawdown would be $101,520. But it doesn't!Once your trailing max drawdown exceeds the initial balance of your challenge, $100,000, it gets locked and never exceeds the initial balance of your account, $100,000.

So, even though your highest balance is $108,000, the max trailing drawdown will be $100,000. The same applies when your highest balance is $110,000. The max trailing drawdown will still be $100,000.Practically, from this point, there is only the daily drawdown that you should care about. This drawdown is still calculated from the day’s initial balance. So if your initial balance of the day is $108,000, your daily drawdown will be $4,320, setting it at $103,680.From that point, you have the max trailing drawdown set at $100,000, but your daily drawdown is still calculated from your initial balance of the day.

There is one more thing you should be aware of. If you request a payout, you always have to have a safety cushion. For example, if you have an $8,000 profit, so your balance is $108,000, you can never withdraw the full profit of $8,000.Therefore, there will be no available Overall Drawdown limit left, and this would result in a breach of the account.

**Scenario 1**

**Profit without crossing Daily Drawdown**

The trader makes a profit of $3,000 on Day 1. The account balance becomes $103,000, and the Max Daily Drawdown for Day 2 is now 4% of $103,000, which is $4,120. The Trailing Max Drawdown at the start of Day 2 is 6% from the highest balance on the challenge. So, if your highest balance was, for example, $105,000, the trailing max drawdown right now is 6% of $105,000, which is $6,300.

So, right now, the trader has two drawdowns: the daily drawdown that is set at $98,880 and the max trailing drawdown that is set at $98,700. **The trader can continue in trading.**

**Scenario 2**

**Profit after crossing Daily Drawdown but not Max Drawdown**

Now, let’s say that the trader continues trading and makes a profit of $8,000, which is also his highest balance on the challenge, $108,000. So his trailing drawdown would be $6,480, set at $101,520. But it is not!

Once your trailing max drawdown would exceed the value of your initial balance, in this case, $100,000, it never gets higher than this and it is locked at $100,000.However, the daily drawdown is still calculated from the initial balance of the day. So, if the initial balance of this day was $108,000, the daily max drawdown is set at 4% of it, so it is $4,320. The daily drawdown is now set at $103,680.

In short, the trader now has the daily drawdown set at $103,680 and the max trailing drawdown set at $100,000. The trader can continue in trading. Now, the trader requests a payout.

**Scenario 3**

**Loss without crossing Daily Drawdown**

He requests a full payout of $8,000. That means his balance becomes $100,000, and his max trailing drawdown is set at $100,000. So now, if he requested the payout of $8,000, the trader’s remaining limit for the day would be $0. Therefore, there will be no available Overall Drawdown limit left, and this would result in a breach of the account.

**Scenario 4**

**Payout Requests and Maintaining Drawdown Limit**

He requests a payout of $4,000. That means his balance becomes $104,000, and his trailing drawdown is set at $100,000. So now, the remaining drawdown of this trader’s account is $4,000, as his trailing max drawdown is set at $100,000. **This trader’s account will not be breached, and he can continue trading.**