Understanding Max Total Loss
The Max Total Loss represents the maximum permissible drawdown before an account breaches its risk limit. This limit varies based on the challenge type and can be static or dynamic depending on the evaluation model.
Two Phase Challenge (Fixed Max Total Loss)
The Max Total Loss is static, meaning it remains a fixed percentage of the initial challenge balance.
Even if the account balance increases, the limit does not adjust.
This provides a clear, unchanging threshold, allowing traders to plan risk more predictably.
One Phase & Instant Funding Challenges (Dynamic Max Total Loss)
The Max Total Loss is dynamic, meaning it changes based on account performance.
It starts as a fixed percentage of the starting balance but moves up as the account balance increases.
It follows a High-Water Mark (HWM) mechanism:
ーWhen the account balance reaches a new peak, the Max Total Loss adjusts upward.
ーOnce the limit locks in at the starting balance, it no longer moves.
ーIf the balance falls due to withdrawals, the Max Total Loss is recalculated.
Impact of Withdrawals on Max Total Loss
Withdrawals affect the High-Water Mark (HWM), which in turn recalculates the Max Total Loss:
New High-Water Mark = Previous High-Water Mark – Withdrawal Amount
New Max Total Loss Minimum Equity = New High-Water Mark – Initial Max Total Loss
Example 1: Max Total Loss Remains Locked
Starting Balance: $50,000
Initial Max Total Loss (10%): $5,000
High-Water Mark: $75,000
Withdrawal Amount: $10,000
Calculation:
New High-Water Mark = $75,000 – $10,000 = $65,000
New Max Total Loss Minimum Equity = $65,000 – $5,000 = $60,000
✅ Outcome: Since the new Max Total Loss is above the locked limit, the loss limit remains fixed at $50,000.
Example 2: Max Total Loss Reduces After Withdrawal
Starting Balance: $50,000
Initial Max Total Loss (10%): $5,000
High-Water Mark: $60,000
Withdrawal Amount: $15,000
Calculation:
New High-Water Mark = $60,000 – $15,000 = $45,000
New Max Total Loss Minimum Equity = $45,000 – $5,000 = $40,000
❌ Outcome: Since the new Max Total Loss is lower than the locked amount, the limit reduces to $40,000.
Scenarios Demonstrating Max Total Loss
Scenario 1 – Account Hits High-Water Mark Before Withdrawal
Step 1:
Starting Balance: $50,000
Max Total Loss: 10% = $5,000
Min Account Equity Before Breach: $45,000
✅ If your balance stays above $45,000, you’re safe.
Step 2:
Account Grows to: $70,000
High-Water Mark: $70,000
Max Total Loss Adjusts to: 10% of $70,000 = $7,000
New Min Account Equity Before Breach: $63,000
Step 3 (After Withdrawal):
New Balance After Withdrawal: $60,000
New High-Water Mark: $60,000
New Max Total Loss: $60,000 – $5,000 = $55,000
Outcome: You can continue trading as long as your balance remains above $55,000.
Scenario 2 – Losses Before Withdrawal
Step 1:
Starting Balance: $50,000
Max Total Loss: 10% = $5,000
Min Account Equity Before Breach: $45,000
Step 2:
Account Grows to: $85,000
High-Water Mark: $85,000
Max Total Loss Adjusts to: $85,000 – $5,000 = $80,000
Step 3 (Losing Trades Before Withdrawal):
Balance Falls to: $75,000
Withdrawal Amount: $20,000
New High-Water Mark: $65,000
New Max Total Loss: $65,000 – $5,000 = $60,000
❌ Outcome: Your account will fail if your equity drops below $60,000.