A daily loss limit sounds simple: stop trading when today's loss reaches X. In practice the result depends on four choices that are often left unsaid. Two tools, or two trading rule sets, can both say "5% daily loss" and still stop you at very different moments. This post walks through those four choices with plain numbers.
The numbers below are made-up examples to show the arithmetic. They are not trading results.
1. Equity or balance
Balance only changes when a trade closes. Equity is the balance plus the profit or loss of the trades still open.
Say the day starts with a balance of 10,000 and no open trades, and the limit is 5% (500).
- You close two trades for -300 in total. Balance: 9,700. A third trade is open at -250. Equity: 9,450.
- A limit that counts closed results only sees -300. Nothing happens.
- A limit that counts equity sees -550. The limit is hit, and the open trade is closed at whatever the market gives.
Many account rules that use the word "daily loss" mean equity: the open loss counts. Check which one your rule uses, because a closed-only limit can let a large open loss run past it.
What the percent is taken from matters too. 5% of the day-start balance, 5% of the day-start equity and 5% of the higher of the two give different amounts when you carry open trades into the new day:
- Day-start balance 10,000, but an open trade carried over is at +400, so day-start equity is 10,400.
- 5% of balance = 500; 5% of equity = 520; 5% of the higher = 520.
Small differences, but they decide whether a trade at -510 is inside the rule or not.
2. When does the day start?
MT5 works in trade server time, and every broker picks its own server time zone. Many use UTC+2 in winter and UTC+3 in summer, so that server midnight lines up with 17:00 in New York, a common end of the forex trading day. Others use UTC, or London time, or something else.
Your rule may define the day differently:
- Server midnight.
- A fixed clock time somewhere else, for example 17:00 New York or 00:00 Central European Time.
The traps:
- Summer time. The United States and Europe change their clocks on different dates. In 2026 Europe went back on 25 October and the US on 1 November, so for one week the gap between London and New York was 4 hours instead of 5. In spring the gap lasts about three weeks. A day start set as "server hour 0" follows whatever rule the broker uses; a day start set as "17:00 New York" moves against server time when only one side changes.
- Weekends and Sunday opens. Some brokers open on Sunday evening server time. Decide whether that short session belongs to Monday or is a day of its own.
- What gets reset. At the day start, the reference value (balance or equity) is taken again and any "limit hit" state from the day before is cleared. If the terminal is restarted in the middle of the day, a good implementation keeps the morning's reference value instead of taking a new one at the restart.
3. From the day start, or from the day's peak
A static daily limit measures the loss from the value at the day start. A trailing daily limit measures it from the best value reached so far today.
Example with a 500 limit and a day start at 10,000:
- By midday you are +600 (equity 10,600). In the afternoon you give back 550 and end at +50 (10,050).
- Static: you are still +50 for the day. Nothing happens.
- Trailing from the peak: you fell 550 from 10,600. The limit of 500 was hit on the way down, at 10,100.
Trailing protects open gains but stops you much earlier on a choppy day. Neither is better in general; they answer different questions. Make sure you know which one your rule uses. Some account rules also have a separate total drawdown limit, static from the starting balance or trailing from the highest equity, on top of the daily one.
4. What happens to pending orders
Closing all positions is only half the job.
- A pending order (limit or stop) left on the account can fill after the close-all and open a new position. A guard should delete pending orders when the limit is hit.
- Orders placed after the limit is hit, by you, by another Expert Advisor or from the phone app, also need handling. In MT5 one program cannot stop another program, or you, from sending an order. What a guard can do is close or delete it as soon as it appears. Expect a short moment where the new position exists.
- If you prefer to keep pending orders (for example protective pending orders you placed by hand), make that a conscious choice, and decide what happens if one fills.
5. The practical details
- The close is at market. On a fast move the loss when the close is done can be larger than the limit. Stop losses on every trade are still the first line of defence.
- Closes can fail. Requotes, a closed market, freeze levels and lost connections all happen. A failed close should be retried until the account is flat, and the failure should be logged.
- Algo trading must be on in the terminal, and the terminal must be running and connected, for any Expert Advisor to close trades. A guard on a laptop that goes to sleep protects nothing.
- Deposits and withdrawals change the balance but are not trading results. A daily loss calculation should leave them out.
- Which trades count. If several strategies run on one account, decide whether the daily limit covers the whole account or only some symbols or magic numbers.
A short checklist
Before you trust any daily loss limit, yours or a tool's, answer these:
- Closed results only, or equity (open trades included)?
- Percent of what: day-start balance, day-start equity, or the higher of the two?
- Day start: server midnight, or a clock time in another city? What happens when the clocks change?
- Static from the day start, or trailing from the day's peak? Is there a separate total drawdown limit?
- On a hit: are positions closed, are pending orders deleted, are new trades blocked until the next day?
- If a close fails, is it retried?
If your rule is written down, compare it with these six points. Where it is silent, ask the party that set it.
