FTMO Daily Drawdown, Explained Without the Confusion

The rule that ends most challenges

The FTMO daily-loss-limit is the single rule that ends more challenges than any other. The rule is simple on paper: your account cannot fall by more than 5% from the previous day's closing balance during a single trading day. In practice, traders breach it without realizing they are close — usually because they are watching a chart instead of watching their equity, or because they are confused about which "5%" the rule actually measures.

This article walks through what the rule actually says, how FTMO computes it, what counts as drawdown (and what doesn't), and the rules I follow on every account I run to make sure the daily limit never becomes a question.

What the rule actually says

FTMO publishes the daily-loss limit as the maximum amount your account equity can decrease during a single trading day. The starting point each day is the higher of: the previous day's closing balance, or the previous day's closing equity. Whichever is higher becomes the "reference balance" for that day. Your account can fall by at most 5% of that reference balance before the daily limit is breached.

Two consequences of this most traders miss:

• Open trades count. If your closed-trade balance is comfortably inside the limit but you have an open position running 4% in the red, you are 4% into your 5% limit. One more pip and the challenge ends.
• Floating profit raises the reference. If you closed yesterday with $100,000 and floated to $103,000 before close (with open positions), today's reference balance is $103,000, not $100,000. Your daily-loss budget today is 5% of $103,000.

Daily vs maximum drawdown — the difference

FTMO has two drawdown rules. Daily drawdown is the one most traders breach. Maximum (or overall) drawdown is the one they also breach occasionally, usually after a string of bad days.

Daily drawdown resets at midnight server time. If you survive today, tomorrow starts fresh with a new 5% budget. Maximum drawdown does not reset — it is anchored to the highest balance you've hit, and the floor is fixed at 10% below that. The full contrast lives in the drawdown glossary entry, including the static-vs-trailing distinction that catches traders off-guard on funded accounts.

How FTMO actually monitors it

FTMO checks drawdown on every tick. "Every tick" means every price update from the broker — many times per second on liquid instruments. The check uses floating equity, not closed-trade balance. This is why a trade running deep in the red can breach the limit even if you're still "holding for a bounce." The bounce, if it comes, comes after the tick that ended the challenge.

Some retail traders hear "floating equity" and assume there's a small grace period or a delay. There isn't. The system enforces in real-time. The trade either survives or it doesn't.

How traders breach the daily limit (the four common ways)

Sizing too big for the stop

The most common breach. The trader sizes the position based on how much they want to make rather than how much they're willing to lose. The stop is at -2% account-risk on the formula, but the position is twice the formula's answer. So one stop-out costs 4%. Add the spread + slippage on a fast move and the breach is complete.

The fix is the fixed-fractional position-sizing formula. The number that comes out of the formula is the position size. Not a starting suggestion. Not an option. The output.

Revenge-doubling after a loss

The trader takes a normal-sized loss for 1% of account, then doubles down on the next setup to recover the loss in one trade. If the second trade hits stop, the day is at 3% losses. One more normal-sized loss and the daily limit is in sight. Most traders in this state then take a third oversized trade because they are already "committed." The third trade is what ends the account.

The fix is a thirty-minute cooldown after every loss. Not as therapy — as a hard rule that produces a different emotional state before the next entry, which produces a different trade.

News-event volatility

Trading through high-impact news releases creates outsized moves in both directions. A normal-sized position with a normal stop can slip past the stop on a news-spike, costing 3-4% on what was budgeted as 1%. If you also have a second open position that gets hit by the same release, the daily limit goes very quickly.

FTMO permits news trading, but their recommendation (and mine) is to size down materially or not trade at all during the highest- impact releases — NFP, FOMC, CPI, central-bank decisions. The time saved by not trading is the time you keep your account.

Forgetting open positions

The fourth pattern: a trader closes the day comfortably, leaves an open position running over the weekend or across a session break, and wakes up to find the position has gapped against them by 3%. Combined with one normal-sized loss the next morning, the daily limit breaches before the trader has even had coffee.

Most traders who pass do not hold over weekends on Challenge or Verification. The reward of a weekend hold is rarely worth the gap-risk to the daily limit on Monday.

The half-of-allowed rule

The single most useful self-imposed rule on the daily limit: cap your own daily drawdown at half of what FTMO allows. If FTMO says 5%, your personal limit is 2.5%. If you hit 2.5% down on the day, you stop trading.

Three reasons this works:

1. It removes willpower as the final barrier. Willpower fails under pressure. A pre-set rule does not. By the time you're at 2.5% down, the rule has already decided for you.
2. It accounts for variance. FTMO checks on every tick. A momentary spike during a bad trade can take you from 2% drawn-down to 5.1% in a second. A self-cap at 2.5% means even a bad spike stops at 4-4.5% total — inside the limit.
3. It preserves the rest of the day for tomorrow. A 2.5% loss is recoverable in normal trading. Stopping at 2.5% means tomorrow starts with 2.5% of margin to work with on the same strategy. Stopping at 4.9% means tomorrow starts with 0.1% of margin, which is unworkable.

What to do if you're close to the daily limit right now

Stop trading for the day. Not after one more setup. Not after the next news release. Now. Then go run the five-question failure-audit even though the challenge isn't over yet. Use the audit to understand what got you to 4% drawdown today so tomorrow looks different.

The traders who survive close-calls treat each one as the lesson it is. The traders who don't survive treat the close-call as proof that they "got away with it" and then take the same oversized position the next day.

The short version

• FTMO daily-loss-limit = 5% of the prior day's reference balance.
• Checked on every tick on floating equity, not just closed balance.
• Most breaches come from oversized positions, revenge doubles, news-event spikes, or forgotten weekend holds.
• Self-imposed half-of-allowed cap (2.5%) saves more accounts than any other single rule.
• Stop trading at the cap. The rest of the day is not worth the rest of the challenge.

For the full risk-management architecture — drawdown response protocol, position-sizing lock, daily-cap enforcement, and the coaching that keeps these rules in place under pressure — MB Capitals on the homepage. Past performance does not guarantee future results.

Sources

• FTMO, How it works — official daily-loss (5%) and overall maximum-loss (10%) values, account-size-specific maximum trading periods, and minimum-trading-day requirements.
• The 2.5% self-cap, thirty-minute cooldown, and weekend-hold recommendation are personal trading rules from this article, not FTMO requirements. They are derived from the math of the 5% official limit and from observed failure patterns across many challenges.