If you’re just starting out with a prop firm, one of the first things you’ll notice is the concept of drawdown limits. These rules can seem intimidating at first, especially when you’re eager to make profits. I remember my first week trading a funded account—I didn’t fully understand the drawdown rules, and within a few days, I hit a minor limit and panicked. That experience taught me a lot about risk, discipline, and sustainable trading.
In this article, we’ll break down drawdown limits for beginners, why they matter, and practical strategies to manage them while growing your trading account responsibly.
What Are Drawdown Limits?
Drawdown limits are essentially safety nets set by prop firms to protect their capital. They define the maximum amount you can lose over a certain period or on a single trade.
There are two main types of drawdown limits:
Daily Drawdown Limits
Daily drawdowns set the maximum loss you can take in a single trading day. For example, if your account is $50,000 and your firm sets a daily drawdown limit of 2%, the most you can lose in one day is $1,000.
Maximum or Total Drawdown Limits
This is the total loss you can take from your starting account balance, often over the course of the funding period or until scaling. Using the same $50,000 account, a maximum drawdown limit of 10% means your account cannot drop below
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