Risk & position sizing
What is a maximum drawdown limit (circuit breaker) for an individual trading day?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A maximum daily drawdown limit is a self-imposed or firm-mandated rule that stops trading for the day once losses reach a predetermined percentage of account value, functioning as a personal circuit breaker.
How it works
These limits are common among professional and prop trading desks to prevent emotional decision-making during losing streaks from compounding into much larger losses within a single session.
An example
A trader sets a rule to stop all trading for the day if losses reach 3% of account value, closing the platform regardless of remaining market hours.
Risk & limitations
Self-imposed drawdown limits only work if consistently followed; many traders break their own rules during emotionally charged losing streaks, undermining the protection.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.