Drawdown and risk limits
Equity-based drawdown
A drawdown measured against live account equity, which includes the unrealised profit and loss of every open position. The breach level can be touched while a trade is still running, before anything is closed.
GFN’s figure
Every GFN risk limit is monitored against account equity. Open positions can breach an account before they are closed, and a later recovery does not reverse a breach that has already happened.
- InstantDaily loss limit
- 3% on equity
- 1 Step and 2 StepDaily loss limit
- 5% on equity
- Recovery after a breach
- Does not reverse it
In detail
Equity-based drawdown,explained
Equity-based measurement is why a trader can breach an account without ever taking a loss on paper. A position that spikes against you intraday and recovers by the close still touched the limit on the way through, and a recovery does not reverse a breach that has already been recorded.
It also means trading costs matter more than they look. Commission and spread come out of equity the moment a position opens, so a trade is already slightly underwater before the market has moved at all.
Worked example
A $100,000 1 Step account carrying an open position $5,000 underwater has already reached the 5% daily loss limit, even though nothing has been closed.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Balance-based drawdown
A drawdown measured against closed balance rather than live equity. Floating losses on open positions do not move the breach level; only realised results do, once a trade is closed.
Daily loss limit
The most an account may lose in one trading day before it breaches. Calculated as a percentage of the previous day's closing level, it resets at a fixed time each day and is the rule that ends most evaluations.
Hard breach
A violation serious enough to fail or terminate the account immediately. Exceeding the daily loss limit or the maximum drawdown is the usual cause, and a later recovery in the market does not reverse it.
Intraday drawdown
The worst point an account reaches during a single trading day, measured from that day's starting level. It is what a daily loss limit monitored on equity actually tests, rather than where the day happens to finish.
Maximum adverse excursion
The furthest a trade moves against you before it closes, whatever its final result. Measured per trade, it shows how much room a strategy genuinely needs rather than how much it eventually used.
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