5% daily loss limit on $100k with floating loss, commission and swap counted: a worked day

[Fairman]

5% daily loss limit on $100k with floating loss, commission and swap counted: a worked day

Take a hypothetical firm that measures the 5% daily loss limit on equity, so the limit is $5,000 below the start of day balance of $100,000, floating trades and costs included.

By mid afternoon the account shows:
Closed trades: -$1,650
Commission on those trades: -$85 (12 lots at $7 a lot round turn)
Swap charged at rollover on a trade held overnight: -$40
Open EURUSD long, 5 lots, 52 pips under water: -$2,600

Equity is 100,000 - 1,650 - 85 - 40 - 2,600 = $95,625. That is a drawdown of $4,375, or 4.375% of the day's start. Only $625 remains before the limit, which is 12.5 pips on that 5 lot position.

A firm that counted closed balance only would show $1,775 used, 1.8%. The same afternoon reads as comfortable or as one bad tick from a breach, depending on a sentence in the rules. Look for the words equity, floating, and the treatment of commission and swap before you size anything.

[Fairman]

Position size decides how fast the last $625 disappears. At 5 lots a pip is $50, so 12.5 pips. At 1 lot it would be 62.5 pips, and at 10 lots 6.25 pips. A spread widening at the rollover hour can take 2 or 3 pips off equity for a moment without any price move, and some firms evaluate the limit continuously, not at the close of the day. If the open trade is losing and the stop is 20 pips away, the stop does not protect you, because 20 pips at 5 lots is $1,000, more than the $625 left. The remaining buffer, not the stop distance, is the figure to compare against the stop when a day is already down.

[Fairman]

Reset time is another detail. Many firms start the trading day at a fixed time such as 17:00 New York, which is 22:00 London for most of the year and 21:00 in the week or so when UK and US clocks are out of step. A trade opened at 16:30 New York, down $2,000 at the reset, begins the new day already $2,000 underwater, with the new day's limit measured from the new start balance or equity depending on the rules. Some firms take the start of day figure from balance, others from equity at that moment. A losing trade carried across the reset is therefore counted in two different days in some rule sets, and the second day starts with less room than 5%.

[Fairman]

A simple pre-trade check keeps this honest. Before placing a new trade write three numbers: the day's start equity, the current equity, and the limit level, which is start equity minus 5%. With $100,000, $95,625 and $95,000, the room is $625. Then compare the room with the worst case of the new trade: lots times stop in pips times pip value, plus the commission and an allowance for slippage. If a 1 lot, 10 pip stop trade risks $100 plus $7 plus perhaps $30 of slippage, that is $137 and it fits. The same trade at 5 lots risks $685 and does not. It takes thirty seconds and replaces guessing in exactly the situation where guessing is most expensive.

[Fairman]

Swap is small but can be a surprise on Wednesday, when a triple charge applies to many symbols. Suppose a position held overnight pays -$8 a lot a night. At 5 lots that is -$40 on a normal night and -$120 on the triple day. A $100,000 account loses 0.04% on the normal night, 0.12% on the triple, which is tiny until the day is already near the limit, as in the example above where $625 was left. The swap posts at rollover, so it lands in whichever day the firm's clock puts the rollover in. If an account sits close to the limit near that time, the swap is not a rounding error.

[FXS HongKong Scalper]

A clear worked day. The swap line is the one people forget, especially on positions held through the triple swap on Wednesday. Building an EA that tracks equity against the daily limit in real time, including all costs, and closes everything at a safety margin before the limit, removes much of the risk from mental arithmetic during a busy session.