Daily drawdown: Based on the account's equity on the previous day
Total drawdown: Based on initial account balance
The daily drawdown is calculated based on the previous day's equity (and cannot exceed a certain amount). The total drawdown is calculated based on the initial capital amount (and cannot drop below a certain amount). Thank you.
Client A: $5000 USD Challenge
Equity of the previous day: $6000
Today's drawdown: $500
Daily drawdown limit: $6000 x 5% = $300
Total drawdown limit: $5000 -($5000 x 10%) =$4500
In this case, your account will fail the challenge because it has exceeded the daily drawdown limit ($300). The daily drawdown limit and the total drawdown limit are two different concepts.
Daily drawdown limit: ensures that you will not lose more than 5% of the previous day’s equity
Total drawdown limit: ensures that your account will not fall below a certain amount at any time.
For example, if your equity on the previous day was $4600, and you lost 4% ($184) today, your daily drawdown is less than 5%, which does not violate the daily drawdown limit rule, but violates the total drawdown limit rule, which cannot be less than $4500, so your account will also be breached.