Understanding Risk Limits
Learn how the daily trailing drawdown and static max drawdown work, and how to avoid breaching them.
What It Means
Risk limits define how much you are allowed to lose before your challenge or funded account is terminated. Albatrix Funded uses two drawdown limits: the 3% daily trailing drawdown and the 7% static max drawdown. These apply during both evaluation phases and on the funded account.
The daily trailing drawdown resets each day based on your previous day closing equity at 5 PM EST. It is called "trailing" because it follows your equity upward - if your equity grows, the daily loss limit grows with it. The static max drawdown is a fixed ceiling based on your starting balance and does not reset.
Why Risk Limits Exist
Prop firms provide capital to traders, so they need to protect that capital from significant losses. The two-drawdown structure provides double protection: the daily limit prevents large single-day losses, while the static limit prevents cumulative losses over time. Together, they ensure that no single bad day or gradual decline can result in a catastrophic loss of capital.
For the trader, these limits enforce disciplined risk management. If you consistently respect a 3% daily drawdown, you are unlikely to experience a 50% account drawdown, which would be devastating to recover from. The limits are designed to keep you trading within a safe risk profile.
How the Daily Trailing Drawdown Works
The 3% daily trailing drawdown is calculated as 3% of your previous day closing equity at 5 PM EST. This means:
- At 5 PM EST each day, your equity is recorded as the baseline for the next trading day.
- During the next trading day, your equity cannot fall below 97% of that baseline.
- If you open a trade on Monday that is still open at 5 PM EST, the drawdown calculation uses floating equity.
- The limit resets daily - even after a bad day, you get a fresh 3% limit from the new closing equity.
Concrete Example: $10K Account
Day 1 close: $10,200 (up $200).
Day 2 daily limit: 3% of $10,200 = $306. Equity cannot fall below $9,894 on Day 2.
Day 2 close: $10,100 (down $100).
Day 3 daily limit: 3% of $10,100 = $303. Equity cannot fall below $9,797 on Day 3.
How the Static Max Drawdown Works
The 7% static max drawdown is 7% of your starting balance for the current phase. It does not reset daily and does not trail upward. For a $10K challenge, the static max drawdown is $700, meaning your equity cannot fall below $9,300 at any point.
Important: The static max drawdown is the absolute floor. Even if the daily trailing drawdown would allow a lower equity, the static limit overrides it. You are bound by whichever limit is higher (less restrictive).
Drawdown Limits by Account Size
| Feature | $5K | $10K | $25K | $50K | $100K |
|---|---|---|---|---|---|
| 3% Daily (from prev close) | $150 | $300 | $750 | $1,500 | $3,000 |
| 7% Static Max | $350 | $700 | $1,750 | $3,500 | $7,000 |
| Equity Floor (static) | $4,650 | $9,300 | $23,250 | $46,500 | $93,000 |
Allowed Examples
Your $10K account closes at $10,500 on Monday. On Tuesday, your equity drops to $10,200 but never goes below the $10,185 daily limit (3% of $10,500).
The daily drawdown from Monday close is $315 (3% of $10,500). Your low of $10,200 is above the $10,185 floor. You are fine.
Over 20 trading days, your equity fluctuates between -2% and +4% but never breaches either drawdown limit. You eventually hit the 6% target.
This is normal, healthy trading performance. Fluctuations within the limits are expected and allowed.
Violation Examples
Your $10K account starts at $10,000. On Day 3, you have a losing trade that brings your equity to $9,280. The static max drawdown is $9,300 (7% of $10K).
Even if your daily trailing drawdown might not have been breached, the static floor of $9,300 was crossed at $9,280. This is a violation.
Your account closes at $10,800. The next day, you open a large position that goes against you, bringing equity to $10,450. The daily limit is $324 (3% of $10,800), meaning the floor is $10,476.
$10,450 is below $10,476. The daily trailing drawdown is breached despite being up $450 from the starting balance.
Common Mistakes
- Calculating drawdown from the starting balance instead of the previous day closing equity. The daily trailing drawdown is based on the 5 PM EST close, not your initial account balance.
- Forgetting that floating equity counts toward drawdown before 5 PM EST. An open trade in drawdown can breach the limit even if it recovers later.
- Not accounting for swap and overnight fees that reduce equity and narrow your drawdown buffer.
- Assuming a 7% drawdown means you can risk 7% per trade - never risk more than a fraction of your daily drawdown per trade.
- Not checking the drawdown calculations in your trading platform frequently enough during the trading day.