Mastering Drawdown: A Guide to Equity Limits at Breakout

Introduction

Good risk management is a core characteristic of any successful trader.

In order to get funded and stay funded, traders must stay within their equity limits at all times.

Rather than relying on confusing or subjective rules, our system simply tracks the account’s equity in relation to its equity limits.

This is an objective, automated process to ensure fairness and transparency.

These equity limits – the maximum daily loss and the maximum drawdown – are the most important metrics to track at all stages as they ultimately determine whether an account is breached (all positions closed, permanently disabled from further trading).

There are no margin calls, liquidation levels, or other layers of complexity.

The equity limits are the primary risk management guardrails for the account.

 

Definitions

Balance: Total value of the account based solely on closed trades i.e. realised PnL. This excludes open positions.

Equity: Real-time value of the account, including both closed trades and the floating PnL of all open positions.

Equity Limit: The equity level at which a breach is automatically triggered.

Breach: Automatic closure of all positions. Trading is permanently disabled on the account. Payouts are not available (if applicable).

Maximum Daily Loss: Daily equity limit for the account. Recalculated every day at 0030 UTC based on the account balance at that time.

Maximum Drawdown: Overall equity limit for the account. 

High Water Mark: Highest account balance. Relevant for 2-Step maximum drawdown calculation.

 

What’s the TL;DR?

Your account has two equity limits in force at all times in all stages – maximum daily loss and maximum drawdown.

If your equity, which includes your open positions/floating PnL, reaches either equity limit at any point for any amount of time, the account is breached (all positions closed, account forfeited permanently).

You’re not on the hook for any trading losses if you breach. You just lose the account. If you want to try another evaluation and/or get funded once again, you must undertake another evaluation.

Your Breakout Dashboard displays your equity limits. You must keep your account equity above both equity limits at all times.

The maximum daily loss is recalculated every day at 0030 UTC based on your balance at that time. The appropriate % deduction is applied to that balance to create an equity limit e.g. $105,000 balance on a 1-Step account (4% maximum daily loss) would mean a $100,800 equity limit for the next 24 hours.

The maximum drawdown is static and never moves on a 1-step account and is 6% less than starting balance. For example, for a $100,000 1-Step account the maximum drawdown is $94,000 permanently.

The maximum drawdown trails your highest balance on a 2-step account (Highest Balance – 8% of starting balance). For example, for a $100,000 2-Step account the maximum drawdown is always Highest Balance – $8,000. The maximum drawdown will not trail past your starting balance e.g. if your balance reaches $109,000, the maximum drawdown will remain at $100,000, not $101,000.

To reiterate: these are equity limits. If your equity – which includes open positions – reaches or falls below either the maximum daily loss or the maximum drawdown then the account will be permanently forfeited. Keep your equity above both equity limits at all times to avoid a breach.

 

Maximum Daily Loss

The maximum daily loss is an account’s daily equity limit.

This daily equity limit is recalculated (not reset) every day at 0030 UTC.

This recalculation is based on the account balance at the time.

For 1-Step accounts, the maximum daily loss equity limit is the 0030 UTC balance – 4%.

For 2-Step accounts, the maximum daily loss equity limit is the 0030 UTC balance – 5%.

For example, if the 1-Step account has a balance of $101,000 and an open position with +$5,000 of floating PnL, then the account balance is still $101,000 and the account equity is $106,000. The calculation is based on the balance, which means that at 0030 UTC the maximum daily loss equity limit will update to $96,960 ($101,000 – 4%). 

For the next 24 hours, the maximum daily loss equity limit for that account is $96,960. If the account’s equity reaches or falls below this equity limit, it will be breached.

Accordingly, traders must always monitor their account equity and ensure it stays above the maximum daily loss equity limit.

There is no guesswork required: your equity is visible in your trading terminal at all times, and your maximum daily loss equity limit is available via the Breakout Dashboard (not the trading terminal).

 

1-Step Account Maximum Drawdown

The maximum drawdown is an account’s overall equity limit.

The maximum drawdown equity limit for 1-Step accounts is 6% below the starting account balance.

For example, for a $100,000 1-Step account, the maximum drawdown equity limit is $94,000.

The 1-Step maximum drawdown equity limit is static – it never trails or adjusts in any direction.

If an account’s equity reaches or falls below this equity limit, it will be breached.

Accordingly, traders must always monitor their account equity and ensure it stays above the maximum drawdown equity limit.

There is no guesswork required: your equity is visible in your trading terminal at all times, and your maximum daily loss equity limit is available via the Breakout Dashboard (not the trading terminal).

 

2-Step Account Maximum Drawdown

The 2-Step maximum drawdown is also an account’s overall equity limit, but unlike the 1-Step, it is not static.

Instead, the 2-Step maximum drawdown equity limit trails the account’s highest balance (High Water Mark).

2-Step Maximum Drawdown = High Water Mark – 8% of Starting Balance.

For example, a $100,000 2-Step account with a High Water Mark of $105,000 will have a maximum drawdown equity limit of $97,000 ($105,000 – $8,000).

If the account’s balance falls from $105,000 to $102,000, the maximum drawdown equity limit does not trail back down as it is based on the High Water Mark.

The 2-step maximum drawdown equity limit is updated whenever the account sets a new High Water Mark.

While trading losses will not reduce the 2-step maximum drawdown equity limit, it will not trail past the starting balance.

For example, if the account’s High Water Mark reaches $109,000 then the maximum drawdown equity limit will stay at $100,000 (not $101,000).

In the funded stage, payouts reduce the High Water Mark by the payout amount. 

For example, the trader makes a profit and increases the account balance and High Water Mark from $100,000 to $103,000. At this time, their maximum drawdown equity limit is $95,000 ($103,000 – $8,000). If they request a payout for the full $3,000 profit, their High Water Mark is also reduced by $3,000 back to $100,000 and as a result their maximum drawdown equity limit returns to $92,000 ($100,000 – $8,000).

There is no guesswork required: your equity is visible in your trading terminal at all times, and your maximum daily loss equity limit is available via the Breakout Dashboard (not the trading terminal).

 

Breaching

A breach occurs when our automated risk engine detects that an account’s equity has reached or fallen below one of its equity limits (maximum daily loss, maximum drawdown).

Upon detecting a breach, all positions are automatically closed and trading is permanently disabled on that account. This applies to both the evaluation stage and the funded stage.

Traders are not responsible or otherwise liable for any losses in the trading account in both the evaluation stage and the funded stage.

If they wish to undertake another evaluation, they may immediately purchase another one via their Breakout Dashboard and retry.

There are no resets or refunds available for breaches or failed evaluations.

There are also no ‘soft’ breaches – reaching or falling below any of the equity limits at any stage, at any time, for whatever reason will result in permanent forfeiture of that specific trading account.

A common misconception is that you need to realise or close a trade in order to breach.

This is not the case.

If we were to use ‘balance limits’ then traders would be able to incur any amount of losses without breaching as long as they didn’t close the trade (e.g. $100,000 balance with -$90,000 in floating PnL is still $100,000 in balance).

This would render the drawdown rules entirely redundant and make effective risk management impossible.

As a result, traders must pay attention to their equity limits via the Breakout Dashboard and ensure their account equity stays above both equity limits at all times.

 

Conclusion

Breakout’s drawdown limits are automated, trader-friendly, and enforce good risk management habits.

At the end of the day, you have two equity limits and you must keep your equity above both of those limits at all times.

If your equity, including open positions, falls below either limit, the account is breached and closed permanently. There are no exceptions, resets, or hidden rules.

The risk rules are the main trading rules at Breakout.

There is no profit cap, consistency rule, risk per trade rule, anti-gambling rule, or other artificial restrictions placed on your trading.

Our rules allow you to focus on what matters most: good risk management and trading your edge.

Ready to get funded? Start your evaluation today.