What's the Maximum Daily Loss Rule? | Sway Funded Help Center

The maximum daily loss rule also called the maximum daily drawdown, stops traders from losing over 5% of their initial daily equity. It also adjusts to prevent potential losses during the trading day, ensuring that the daily loss level stays in sync with the equity growth, dynamically adjusting in parallel with equity gains, thereby trailing the daily drawdown level accordingly.

This rule applies to both the challenge and the funded account, and it is one of the most important in order to protect Sway’s capital. Breach this and the account is closed. It is therefore very essential to understand how the maximum daily loss works.

The Drawdown is a trailing value at which is not about total losses incurred by closed orders, but by taking into consideration the difference between the maximum daily equity and the current equity, when compared to 5% (No add-ons) of the Initial equity for the day.

Daily DD Threshold = Max Daily Equity - (Initial Daily Equity x 0.05)

Overall DD Threshold = Max Equity - (Initial Equity x 0.10)

Calculation Methods:

Based on the Initial Equity of the Day
At 00:00 GMT+2, the server captures the equity of the account. The maximum daily loss is calculated as 5% below the initial equity.

Based on Equity Growth within the trading day
During the trading day, before the next 00:00 GMT+2 (server time) calculation, the system records the day's high-water mark (the highest equity point). If the equity increases, the maximum daily loss also adjusts upwards (trailing) by the same amount. Trailing occurs in real time, whenever the server registers a new high-water mark for the day.

It is important to note that the account balance and maximum daily loss reset to their default levels after a payout.

For example:

Scenario 1

Account equity at 00:00 GMT+2: $100,000 | Max. daily loss limit: $95,000.

The trader opens a position and gains 2% ($2,000), reaching an equity of $102,000, setting a new high-water mark and adjusting the maximum daily loss to $97,000 ($95,000 + $2,000).

The trade later turns negative and gets closed at -4.5% from the equity, ending at $97,410.

In this case, the trader does not breach the maximum daily loss rule, as the loss is within the limit and the equity didn't reach the $97,000 level.

Scenario 2

Account equity at 00:00 GMT+2: $100,000 | Max. daily loss limit: $95,000.

The trader opens a position and gains 2% ($2,000), reaching an equity of $102,000, setting a new high-water mark and adjusting the maximum daily loss to $97,000 ($95,000 + $2,000).

Later, the trade turns negative and, at a distance of -4.95% from the current high-water mark, is automatically closed by our system, ending at $96,951.

Although the loss is only -3% from the initial equity of the day, and -4.95% from the high-water mark, it breaches the daily maximum loss rule since it reached the $97,000 level.

Should you breach the loss limit in the trading account, then your account will be closed. You may retake the practical evaluation by purchasing another challenge, should you wish to show that you now fully understand the limits.

Please note that during the purchase of your challenge, you can choose to increase the drawdown limits of your account, doubling it in size by purchasing an add-on (but note that this also means that the profit target doubles in size).