Daily loss limit
The daily loss limit caps how much a challenge or funded account may lose in a single trading day — commonly 4–5% of the account size. Crossing it, even for a moment, breaches the account.
Most firms measure the limit on equity, not closed balance, so open losses count: if floating P&L drags equity through the floor intraday, the account is breached even if the trade would have recovered. The reference point is commonly the day's starting balance or equity, and the day resets at a fixed server time rather than your local midnight.
It is a hard rule. Violation is an automatic account breach at most firms — the challenge ends, or the funded account is closed. It is also the most commonly broken rule, typically through a losing streak traded at full size rather than one bad trade.
Unlike the maximum drawdown, the daily limit resets every day, which is what makes it survivable: it punishes concentration of losses, not losses as such.
Example
A $100,000 account with a 5% daily loss limit may lose $5,000 in one day. If the day starts at $101,200, the floor for that day commonly sits at $96,200. Three open positions showing a combined −$4,600 leave $400 of room; one spread widening past −$5,000, and the account is breached before any trade closes. Exact anchoring differs — some firms use the prior day's balance, others equity, others the initial size — so the rulebook wording matters, as unpacked in prop firm rules explained.