Daily vs Maximum Drawdown: The Key Differences (2026)

Daily drawdown is the most you can lose in a single trading day before breaching, and it resets each session. Maximum drawdown is the most you can lose from your account's peak over its entire lifetime. Daily drawdown limits short-term damage day by day, while maximum drawdown is the hard floor your account can never cross.

Most traders who fail a funded evaluation did not misread the chart. They misread the rulebook. The two limits that end the most accounts are the daily drawdown and the maximum drawdown, and confusing them is one of the most expensive mistakes in prop trading. In 19 years I have seen skilled traders breach a daily limit they did not realize reset at a specific server time, and others quietly grind toward a maximum limit they were not tracking because they were focused only on the day.

These are two different constraints with two different logics, and if you trade with a proprietary trading firm you have to respect both at once. This guide lays out how each one works, how they interact, the traps in each, and how Pipcy's model, which uses neither a daily limit nor a trailing one, changes the picture. For the foundations, the hub guide on what is drawdown in trading covers the core concept first.

What Is Daily Drawdown?

Daily drawdown, also called the daily loss limit, is the maximum you are allowed to lose in a single trading day. Exceeding it typically fails the account or the day, regardless of your overall profit. It resets at the start of each new trading day, giving you a fresh limit every session, and is measured from either your daily starting balance or your daily starting equity.

Daily drawdown is a short-horizon circuit breaker. Its job is to stop one catastrophic day, the tilt-fuelled revenge-trading spiral, from destroying an account. If your daily limit is 5% on a $100,000 account, you can lose up to $5,000 in that session. Cross it and you have breached, even if your account was up 20% overall coming into the day.

The reset is the defining feature. Each new trading day, usually at a fixed server time such as 5pm New York, the limit resets relative to your fresh starting balance or equity. So daily drawdown never accumulates across days. It is a repeating, one-day-at-a-time constraint. The catch traders miss is that the reset time is the firm's clock, not yours, so a position held across that rollover can straddle two separate daily limits.

How Daily Drawdown Is Calculated

Daily drawdown is calculated one of two ways. Balance-based means the limit is set from your balance at the day's start. Equity-based means it is set from your starting balance plus any floating profit or loss. Equity-based daily limits are stricter, because unrealized losses on open trades count against the limit in real time.

The calculation method matters a great deal. Under a balance-based daily limit, only closed trades move you toward the limit, so an open position showing a temporary loss does not breach you until you realize it. Under an equity-based daily limit, your floating (unrealized) loss counts instantly, so a trade that dips before it works can breach you even if it would have recovered. Always confirm which method your firm uses, because it changes how much room an open trade really has.

What Is Maximum Drawdown?

Maximum drawdown, also called total or overall drawdown, is the largest loss allowed from your account's highest point over its entire lifetime. Breaching it ends the account permanently. Unlike daily drawdown, it does not reset. It is the ultimate floor, and it can be either static (fixed from the starting balance) or trailing (following the account's peak).

Where daily drawdown governs a single session, maximum drawdown governs the whole life of the account. It is the line that, once crossed, terminates the evaluation or funded account for good. If your maximum drawdown is 10% on a $100,000 account, your account can never fall more than $10,000 below its reference point, and depending on the firm, that reference point is either fixed or moving.

The static versus trailing distinction is where maximum drawdown gets dangerous. A static maximum sits a fixed distance below your starting balance and never moves. A trailing maximum follows your peak upward and locks in gains, so it tightens as you profit. The mechanics of that are covered fully in the guide to trailing drawdown. For a deeper definition of the maximum limit on its own, see maximum drawdown.

Daily vs Maximum Drawdown: Side by Side

The core difference is timescale. Daily drawdown caps losses within one day and resets each session, while maximum drawdown caps total losses from the account's peak and never resets. Daily drawdown protects against a single bad day. Maximum drawdown protects the account's overall capital. A breach of either ends the day or the account respectively.

The key point is that they work on different clocks and you have to satisfy both at the same time. You can have plenty of maximum-drawdown room left and still fail by breaching the daily limit in one reckless session. You can also stay under your daily limit every single day and still slowly bleed into your maximum drawdown over weeks. Passing an evaluation means never crossing either line, which is precisely why they are stacked, and why so many traders find funded challenges harder than expected. It is also a core reason most traders fail prop challenges.

How the Two Limits Interact

When a firm imposes both limits, they constrain you at two timescales at once. The daily limit caps each session's loss, and the maximum limit caps cumulative losses from the peak. The daily limit usually binds first on a bad day, while the maximum limit binds over a losing streak. You breach whichever you hit first.

In practice the two rules trade off against each other. On a single disastrous day, the daily limit is your first tripwire, and it stops you out before you can do maximum-drawdown-level damage. Over a slow, grinding losing streak spread across many days, the daily limit keeps resetting and never triggers, so the maximum drawdown becomes the binding constraint as your cumulative losses creep toward the lifetime floor.

This is why sound forex risk management has to account for both horizons. Sizing to respect only the daily limit can still march you into a maximum-drawdown breach over time, and sizing to respect only the maximum limit can still blow a single day through the daily cap. The disciplined approach keeps per-trade risk small enough that neither limit is ever seriously threatened, the same principle behind the funded trader mindset.

A Worked Example: Both Limits in Action

On a $100,000 account with a 5% daily limit ($5,000) and a 10% static maximum ($10,000 floor at $90,000), you can lose up to $5,000 in any single day, and your account can never fall below $90,000 total. A $6,000 loss in one day breaches the daily limit even though you are nowhere near the $90,000 floor. A slow bleed to $89,900 over two weeks breaches the maximum even if no single day exceeded $5,000.

Watch how the two limits catch different failures on that $100,000 account:

• Day 1: You lose $4,800. Under the daily limit ($5,000) you survive, barely. You are at $95,200, well above the $90,000 maximum floor. No breach.
• Day 2 (bad day scenario): You lose $6,000 in the session. You breach the daily limit the moment you cross minus $5,000, regardless of the fact that $94,000 is still far above the $90,000 floor. The daily limit caught you first.
• Slow-bleed scenario instead: You lose roughly $900 a day for eleven days. No single day ever approaches the $5,000 daily limit, so it keeps resetting harmlessly, but your cumulative losses drag the account to $89,900, which breaches the maximum. Here the daily limit never fired. The lifetime floor did.

The two scenarios show why you cannot manage just one limit. The daily cap is your defense against a single blow-up. The maximum is your defense against slow attrition. A trader who respects only one is exposed to the other.

How to Trade Under Both Limits

To trade safely under both a daily and a maximum drawdown, keep per-trade risk small (0.5 to 1%), set a personal daily stop well inside the firm's daily limit, track your cumulative distance to the maximum floor, and stop trading for the day after a defined loss rather than trying to recover it. The goal is to keep both limits so far from being touched that they are never a factor.

The practical playbook that keeps both lines comfortably distant:

1. Risk small per trade. At 0.5 to 1% risk, it takes many consecutive losses to threaten even the daily limit, let alone the maximum. Small size is the master control for both.
2. Set a personal daily stop. Pick a daily loss figure comfortably inside the firm's daily limit, say two-thirds of it, and stop for the day if you hit it. This keeps you clear of the hard daily breach with margin to spare.
3. Track the maximum floor daily. Note your cumulative distance to the lifetime floor each day so a slow losing streak cannot sneak up on you.
4. Never chase within a session. The daily limit exists precisely to stop revenge trading. Honour your personal daily stop and the firm's daily limit becomes irrelevant.

Do this and neither limit is ever seriously in play, which is the whole point. Limits you never approach cannot fail you.

Does Pipcy Use Daily or Maximum Drawdown?

Pipcy uses a maximum drawdown but no daily drawdown, and no trailing drawdown either. Pipcy Classic uses a 12% absolute (static) maximum drawdown from the starting balance. Pips Mastery uses a fixed 250-pip maximum loss. With no daily limit and no trailing, you manage risk against one fixed lifetime number instead of juggling two moving constraints.

This is a deliberate simplification that favours the trader. Most firms stack a daily limit on top of a maximum limit, which forces you to defend two lines on two clocks. Pipcy removes the daily limit entirely, so you are never stopped out of a session over normal intraday variance, and you have the freedom to manage risk across the whole evaluation rather than defending an artificial daily line.

On the Pipcy Classic challenge, the only floor is a static 12% below your starting balance. On the Pips Mastery Challenge, it is a fixed 250-pip budget. Because the maximum is static, not trailing, it also never tightens as you profit. One fixed number, no daily reset to track, no peak to chase, which is about as clean a risk framework as prop trading offers. The Pipcy Classic vs Pips Mastery comparison shows how the two structures differ.

Pricing may change over time, and Pipcy periodically runs limited-time promotional discounts. For the most up-to-date pricing and any active offers, visit the Pipcy Classic challenge page / Pips Mastery Challenge page directly.

Common Mistakes With Daily and Maximum Drawdown

The most common mistakes are not knowing the daily reset time, confusing balance-based with equity-based calculation, sizing only for one limit while ignoring the other, and treating a static maximum like a trailing one. Each comes from not reading the specific rules of the account being traded.

The errors that end evaluations:

• Ignoring the reset clock. Not knowing when the daily limit resets, and holding trades across it, can straddle two daily limits unexpectedly.
• Balance vs equity confusion. Assuming only closed losses count when the firm uses an equity-based limit, so a floating loss breaches you sooner than expected.
• Defending one line, not both. Sizing to stay under the daily cap while slowly bleeding into the maximum, or the reverse.
• Misreading the maximum type. Treating a trailing maximum as static and breaching while in profit.
• No running tally. Not tracking cumulative distance to the maximum floor day over day.

The fix is simple discipline: read the exact rules, know both limits and their calculation methods, and size small enough that neither is ever in play.

Frequently Asked Questions

What is the difference between daily and maximum drawdown?

Daily drawdown is the most you can lose in a single trading day and resets each session. Maximum drawdown is the most you can lose from your account's peak over its entire lifetime and never resets. Daily drawdown protects against one catastrophic day, while maximum drawdown is the permanent floor that protects the account's total capital. A breach of either ends the day or the account.

Does daily drawdown reset?

Yes. Daily drawdown resets at the start of each new trading day, usually at a fixed server time such as 5pm New York. Each session you get a fresh limit measured from your new daily starting balance or equity. Because it resets, daily drawdown never accumulates across days, but any position held across the reset time can straddle two separate daily limits.

Is daily or maximum drawdown more important?

Both matter and you have to respect both at the same time. The daily limit usually binds first on a single bad day, stopping you before you can do lifetime-level damage. The maximum limit binds over a losing streak spread across days, when the daily limit keeps resetting. Passing an evaluation means never breaching either, so neither is more important. They protect different timescales.

How is daily drawdown calculated?

Daily drawdown is calculated either from your balance at the day's start (balance-based) or your starting balance plus floating profit and loss (equity-based). Equity-based limits are stricter because unrealized losses on open positions count in real time, so a trade that dips before recovering can breach you. Always confirm which method your firm uses before sizing your trades.

Does Pipcy have a daily drawdown?

No. Pipcy uses no daily drawdown and no trailing drawdown. It applies only a static maximum: a 12% absolute drawdown from the starting balance on Pipcy Classic, and a fixed 250-pip maximum loss on Pips Mastery. This means you manage risk against one fixed lifetime number rather than juggling a daily limit and a maximum limit on different clocks.

Can you breach maximum drawdown while profitable?

Only if the maximum drawdown is a trailing one. A trailing maximum follows your account's peak upward, so giving back gains can breach it even while you are above your starting balance. A static maximum is fixed below your starting balance and cannot be breached while profitable. Pipcy uses a static maximum, so this cannot happen on either challenge.

Daily and maximum drawdown are two limits on two clocks. One caps a single session and resets, the other caps the account's whole life and never does. Confusing them, or defending one while ignoring the other, is a leading cause of failed evaluations. Know both, know how each is calculated, know the reset time, and size small enough that neither line is ever seriously in play.

The simplest way to reduce that complexity is to trade a model with fewer moving limits. Pipcy uses a single static maximum drawdown, 12% on Classic and 250 pips on Pips Mastery, with no daily limit and no trailing, so you plan around one fixed number. If that clarity appeals, the Pips Mastery Challenge and Pipcy Classic offer up to 95% profit split, 48-hour payouts, and free Pipcy Academy access.

Written by Vladimir Rybakov, Head of Pipcy Academy. Vladimir is a CFTe-certified financial technician with 19 years of market experience and the founder of Home Trader Club.

Fact-checked by Snir Ahiel, former co-founder of The5ers and risk management specialist at Pipcy, with 15+ years trading Forex, Stocks, and Options.

Risk disclosure: Trading foreign exchange carries a high level of risk and may not be suitable for all investors. Pipcy provides simulated trading evaluations. Past performance and backtested results are not indicative of future results. Nothing in this article constitutes financial advice.