Profit target and daily loss limit

Every evaluation has two headline numbers: the profit you must reach and the loss you must not exceed in a single day. They look simple. The details of how each is measured decide whether a perfectly good trading day ends your account.

The profit target

The target is a dollar figure, usually 6% to 10% of the nominal account. On a "$50,000" futures account it is commonly $3,000; on a "$100,000" account, $6,000. Forex firms usually state it as a percentage: 8% to 10% for the first step of a two-step evaluation and 4% to 5% for the second.

Questions to answer from the rules page:

• Closed or open profit? Nearly always closed (realised). An open trade that shows you above target does not count until it is closed.
• Net of commissions and fees? On futures accounts, commissions and exchange fees are usually deducted from the sim balance, so "$3,000" means $3,000 after costs. Twenty round turns on ES at roughly $4 to $5 each is $80 to $100 that has to be earned back.
• Does the target change with a consistency rule? Some firms require the target to be reached with no single day exceeding a share of total profit. Lesson 3 covers this; it can push the effective target well above the headline.
• Is there a time limit? Most futures firms dropped time limits; many forex firms still have 30 or 60 day windows on one or both steps. A time limit changes the maths of Module 3 substantially.

The daily loss limit

The daily limit is the maximum you may lose in one trading day before the account is failed (or, at some firms, locked until the next day). Typical values:

The "measured from" column is the trap. There are three common definitions and they produce different numbers.

From start-of-day balance. Day starts at $101,500 closed balance. 5% limit sits at $96,425. Open profit or loss during the day does not move the line.

From start-of-day equity. Day starts with balance $101,500 but an open position showing -$800, so equity is $100,700. The limit sits at $95,665. The open position counts against you from the first minute.

From starting account balance, always. The line is $95,000 regardless of what you have made. This is generous on the way up and identical on day one.

Worked example. You start the day at $102,000 balance, no open trades, 5% daily limit. You lose $3,000 on two trades, then a third trade shows -$2,200 unrealised. What is your position?

Same trades, same rule name, one account failed and one not. And notice that under the first basis the breach occurred on unrealised loss; you did not get to decide whether to close.

Key idea: "5% daily loss" is not a rule until you know the base it is measured from and whether open trades count. Write the actual dollar line for tomorrow every evening; never trade against a percentage.

Does the daily limit include open trades?

At most futures firms with a daily limit, and at most forex firms, the answer is yes: if equity (balance plus open profit and loss) touches the line, the account fails instantly, with positions liquidated. That means a trade that would have recovered still counts as a breach. It also means your stop must be placed so that the worst case, including slippage, keeps equity above the line.

Some firms use a "soft" daily limit that only locks you out for the rest of the day rather than failing the account. That is materially better; find out which you have.

Turning the two numbers into a plan

Once you know the target and the daily limit in dollars, two derived numbers follow:

• Days of losses to failure at the daily limit: maximum drawdown / daily limit. A $2,000 drawdown with a $1,000 daily limit is two bad days. That is the total budget.
• Per-trade risk as a fraction of the daily limit: Module 3 argues for one-fifth to one-tenth. With a $1,000 daily limit, that is $100 to $200 per trade.

Try it: For one evaluation, write the target in dollars after fees, the daily limit in dollars, the base it is measured from, and whether open trades count. Then compute tomorrow's daily limit line as an absolute equity number.

Recap

• The profit target is closed profit, usually net of commissions; check for time limits and consistency conditions.
• The daily loss limit is measured from start-of-day balance, start-of-day equity or starting balance; each gives a different line.
• At most firms, unrealised losses count toward the daily limit and a touch fails the account.
• Convert both numbers to absolute dollar lines every evening and derive per-trade risk from the daily limit.