Max Drawdown vs Max Daily Drawdown in Prop Trading

Max Drawdown vs Max Daily Drawdown in Prop Trading: Key Differences Every Trader Must Know

Understanding the rules of risk management is critical to success in proprietary trading. At TEFS, two of the most essential rules traders must follow are Max Drawdown and Max Daily Drawdown. While they may sound similar, each plays a distinct role in protecting your capital and guiding your trading strategy.

In this guide, we’ll break down what Max Drawdown and Max Daily Drawdown really mean, how they differ, and why mastering both is vital to becoming a funded trader.

What Is Max Drawdown?

Max Drawdown is the maximum total loss allowed from the starting balance of your trading account. It reflects how much your account equity can decline from its peak before breaching risk limits.

📌 Example:
 Let’s say you're trading a $100,000 funded account with a Max Drawdown of 6%. That means your account must not fall below $94,000 at any time. If your equity or balance drops below this level, your account will be breached — regardless of how many days it took to get there.

This rule is designed to protect your overall trading capital across the entire evaluation or funded period.
👉 Read the full guide on Max Drawdown here.

What Is Max Daily Drawdown?

Max Daily Drawdown limits how much you can lose in a single trading day. It resets at the start of each new trading day and is based on either your account balance or equity at the beginning of that day.

📌 Example:
 If you have a $100,000 account and your Max Daily Drawdown is 4%, you must not lose more than $4,000 in one day. If your losses reach $4,000 from your day’s starting point — either through open trades or closed positions — your account will be in violation.

This rule ensures traders don’t take excessive risks or allow emotions to cause damaging single-day losses.

👉 Learn more about Max Daily Drawdown here.

Max Drawdown vs Max Daily Drawdown: What’s the Difference?

Here’s a quick breakdown of how these two risk rules compare:

Why These Limits Matter at TEFS

At TEFS, our evaluation and funded programs are designed to reward discipline, consistency, and responsible trading. Traders who understand and respect Max Drawdown and Max Daily Drawdown rules are more likely to:

●    Avoid account breaches

●    Pass evaluations successfully

●    Earn instant funding

●    Maintain long-term profitability

These drawdown limits aren’t just rules — they’re your roadmap to professional trading success.

Start Your Trading Journey with TEFS
Whether you're a seasoned trader or just getting started in prop trading, mastering drawdown management is key. At TEFS, we offer funded trading challenges and instant funding packages designed to fit your trading style.

🎯 Ready to prove your skills and get funded?
 Try one of our challenges or instant funding accounts today:
👉 Get started with TEFS now.