Balance vs equity: how a daily loss limit is calculated

Two numbers that look the same until they do not

Your trading platform shows both balance and equity. When you have no open trades they are equal, so it is easy to treat them as the same thing. They are not, and the difference decides when a daily loss limit is reached.

Balance is the money in the account from closed trades, deposits and withdrawals. It only changes when a trade closes. Equity is balance plus the floating profit or loss of every open trade. It moves with every price change.

The two parts of a daily loss limit

Every daily loss limit has two parts, and each can be based on balance or equity:

1. The starting point: the account value at the start of the day, taken at a fixed reset time.
2. The current value: what you compare against the starting point during the day.

Example 1: no trades held overnight

You start the day flat, with balance and equity both at $10,000. Your limit is 3%, which is $300. Your stop level is $9,700.

At 11:00 you have closed one trade for a $100 loss and have an open trade down $150. Balance is $9,900. Equity is $9,750. Measured on balance, you have lost $100. Measured on equity, you have lost $250 and have only $50 of room left. A limit that watches equity reacts to the open loss before it is closed. A limit that only watches balance does not.

Example 2: a trade held over the reset

You hold a trade overnight that is $400 in profit at the reset. Balance is $10,000, equity is $10,400.

If the starting point is balance, your 3% limit is $300 and the stop level is $9,700. The open profit acts as a cushion: equity can fall $700 before the limit is reached. If the starting point is equity, 3% is $312 and the stop level is $10,088. Giving back about $312 of that open profit reaches the limit, even though the account is still above its starting balance.

The reverse happens when you hold a losing trade over the reset. Measured from equity, the open loss is already counted, so the day starts lower. Measured from balance, that loss counts against today's limit.

Prop firms use different versions

Firms that run evaluation challenges set their own method. Some measure from the start-of-day balance, some from equity, and some from whichever is higher. Many count floating losses, so an open trade can breach the limit before you close it. Reset times differ too. Read your firm's current rules and work out your numbers their way. This guide describes common patterns, not any specific firm's terms.

How to work it out by hand

1. Note the balance and equity at your daily reset time.
2. Turn your limit into money. For a percentage, multiply the starting value by the percentage.
3. Subtract it from the starting value to get your stop level.
4. During the day, compare current equity with the stop level, not only the closed result.

The daily drawdown calculator does these steps for you.

Where LossGuard helps

LossGuard takes a snapshot of your balance and equity at your daily reset. A percentage limit is turned into money from the start-of-day balance. The loss is then measured as the fall in equity since the start of the day, so open losing trades count before they are closed. When the fall reaches your limit, LossGuard closes all positions, cancels pending orders and locks the day. It works on MT5 and cTrader.

If your firm measures differently, set your LossGuard limit below the firm's so the difference becomes a buffer. Check your firm's rules. No tool can guarantee how a close fills in a fast market.

Try it free for 7 days on one account: create your account.

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