What is a daily loss limit in trading?

A daily loss limit is the most an account is allowed to lose in one day: once the day’s loss reaches it, no new trades open until the next day starts. It is a rule about new trades, not a cap on the loss itself. Trades already open run to their stops, so a day can end past the limit.

How a daily loss limit is measured

Three choices decide how the limit behaves:

• What counts. Closed trades only, or equity, which includes the floating loss of open trades.
• The base. Usually the day’s starting balance, with the limit set as a percentage of it or of the initial balance.
• When the day starts. Midnight UTC, midnight in the broker’s server time or a prop firm’s own reset time.

As of October 2026, FTMO’s 2-Step challenge sets the limit at 5% of the initial capital below the balance recorded at 00:00 CE(S)T, measured on equity, open positions included (FTMO trading objectives). Prop firm daily drawdown compares firms.

Why a day can end past the limit

Each stop can also fill past its level when the price jumps, as around news or after a weekend gap. That is slippage, and it adds to the overshoot. The drawdown calculator counts how many losses in a row reach a given limit at your risk per trade.

Daily loss limits in MT5

MT5 has no setting for one: none of the tabs in Tools → Options caps a day’s loss (MT5 help). The nearest, “Stop if equity is less than” on the Signals tab, is a fixed equity floor for copied signals only. The day’s closed trades are on the History tab of the Toolbox (View → Toolbox, or Ctrl+T) and floating profit or loss on the Trade tab. Without an EA setting or a separate utility, the limit is manual: stop at the number, and switch off the Algo Trading button if an EA is running.

A common mistake

Treating the limit as the most the day can lose. Because of the overshoot, the limit and the worst possible day are two different numbers. The other mistake is a clock mismatch: a limit that resets at midnight UTC and a firm that resets at midnight Central European time are one hour apart in winter and two in summer. A daily limit is also not a drawdown or trailing drawdown limit, which caps the fall over many days.

How PipWarden applies it

PipWarden trades through an Expert Advisor in MT5 on a Windows PC or VPS. The daily loss limit is set per account on the dashboard, 5% by default:

• The day is the UTC day. Its loss is measured from the balance minus that day’s closed trades, so deposits and withdrawals do not count.
• What counts is equity, so floating losses count.
• When it is checked: before every order, on the server and again in the EA with live data.
• At the limit: new trades are refused while the day’s loss is at or past the limit. Once the server sees the breach, or the EA has seen it for 10 seconds, the rest of the UTC day is locked, even if equity recovers. Skipped signals are logged as “Daily loss limit reached”, and you get an alert.
• Open trades are not closed. They keep their stop loss and take profit, so the day can still end past the limit.

The separate kill switch closes every position the bot opened. How to set a daily loss limit covers sizing the number.