Daily and total loss limits, the prop way

Why prop firms have these rules

Prop firms almost always have two rules: a daily loss limit and a total loss limit. They are not there to catch traders out; they separate someone who controls risk from someone who trades on luck.

The exact definition

Suppose the starting balance is ten thousand dollars:

• Five percent daily loss limit: on any day, equity may not fall more than five hundred dollars (five percent of the starting balance) below that day's opening balance.
• Ten percent total loss limit (fixed): equity may never fall below nine thousand dollars.
• Trailing total loss limit: the floor rises with the highest closed balance. In the PAMM Iran evaluation, once the floor reaches the starting balance, it stops rising.

From rule to habit

1. Set your personal daily limit a little tighter than the rule; if the rule is five percent, stop yourself at three.
2. At one percent risk per trade, reaching the daily limit means several losses in a row; that is a signal to stop, not to win it back.
3. Never raise your volume to recover the same day's loss.

Test yourself

In the PAMM Iran transparent prop evaluation you can pass these same rules on your own real account and receive a certificate anyone can check. The full guide is transparent prop evaluation.