Equity vs Balance-Based Drawdown: Why It Matters
Balance-based drawdown counts closed trades. Equity-based counts the trade you are still holding. That difference decides whether refusing to take a loss protects you or ends the account.
Key Takeaway
Balance-based drawdown counts only closed trades. An open losing position does not affect your limit until you close it. Equity-based drawdown includes open floating profit and loss. The trade you are still holding counts against your limit right now. Equity-based is stricter, and it is the norm. At ForRealFunding the daily loss limit is calculated from the higher of balance or equity and applies to both realised and unrealised losses — so open positions count.
In this article
Quick answer
Balance-based drawdown counts only closed trades. An open losing position does not affect your limit until you close it.
Equity-based drawdown includes open floating profit and loss. The trade you are still holding counts against your limit right now.
Equity-based is stricter, and it is the norm. At ForRealFunding the daily loss limit is calculated from the higher of balance or equity and applies to both realised and unrealised losses — so open positions count.
Worked example
A $100,000 account with a 3% daily loss limit, so a $3,000 threshold. You are holding one open position currently down $3,500.
| Balance-based | Equity-based | |
|---|---|---|
| Balance | $100,000 | $100,000 |
| Floating P&L | −$3,500 | −$3,500 |
| Equity | $96,500 | $96,500 |
| Counts toward limit | $0 | $3,500 |
| Status | Fine | Breached |
Same account, same trade, same moment. Under one rule you are having an unpleasant afternoon; under the other the account is already closed.
Why "I'll wait for it to come back" ends accounts
This is the practical consequence, and it is the reason the distinction matters more than it sounds.
Under an equity-based rule, refusing to close a losing trade does not postpone the loss. It removes your ability to choose when it lands. The account closes automatically at the threshold, at whatever price the market happens to be, with no opportunity to manage the exit.
A trader who takes a $2,000 loss deliberately still has an account and a bad day. A trader who holds the same position hoping for a reversal has neither.
The instinct is understandable — an unrealised loss genuinely feels less final than a realised one. Under an equity rule that feeling is simply wrong, and the platform does not share it.
The trap on the profit side
Where the limit is measured from the higher of balance or equity, unrealised gains work against you too.
Your balance is $100,000. An open winner pushes equity to $103,000. The measuring point becomes $103,000, so a 3% limit puts your floor at $99,910 — above where your day started.
That trade now retraces to breakeven. You have closed nothing, your balance is unchanged, and you are meaningfully closer to a breach than you were this morning.
The lesson: floating profit is not yours in any way that matters until it is banked. Under an equity-based rule, running a winner is a decision with a risk cost, not a free option.
This also interacts with trailing drawdowns, where the peak equity sets the floor permanently. Trailing vs static drawdown.
How to size under an equity rule
Size for the worst excursion, not for your stop.
Your stop defines where you intend to exit. It does not define how far the position travels before getting there. A trade that eventually hits a $500 stop can be $900 against you during a spread widening or a news spike — and under an equity rule, that $900 counts while it is happening.
Practical adjustments:
- 1Leave headroom. If the daily limit is 3%, plan your worst realistic day at 2%. The gap absorbs excursions
- 2Count open risk, not just closed. Two positions each risking 0.5% are 1% of open exposure the moment both are running, before either resolves
- 3Reduce size around volatility. News releases produce the excursions that breach equity rules. The stop is not the protection it appears to be when the spread is five times normal
- 4Bank partial profit. Closing half a winner converts floating gain into balance, which is yours in a way floating gain is not
Use the drawdown calculator to see your thresholds at your account size, and the position size calculator to convert a percentage into lots.
ForRealFunding's limits
| Program | Daily loss limit | Max drawdown |
|---|---|---|
| Pay After Pass (evaluation) | 8%, equity-based | 15%, static |
| Standard 2-Step (evaluation) | 5% | 10%, static |
| Pay After Pass (funded) | 3% | 6%, static |
| Instant Funding | 3% | 6%, trailing |
The daily limit is measured from the higher of balance or equity and includes floating losses in every case.
Note the 8% evaluation limit against 3% once funded. Under an equity-based rule that drop is sharper than it looks, because the same trade's intraday excursion now consumes a much larger share of a much smaller budget. Size from the funded number from your first evaluation trade and nothing changes when you cross over.
Bottom line
Find out which rule you are on before you trade, and assume equity-based unless told otherwise — it is the industry norm and it is what ForRealFunding applies.
Then trade as though open losses are real, because under this rule they are. The account does not wait for you to accept a loss before acting on it.
ForRealFunding's Pay After Pass evaluation gives you 8% daily and 15% of static room to work inside, which is enough headroom that excursions rarely become a problem at sensible size. Start from $9.99.
Related: Max daily loss explained · Drawdown rules explained · Trailing vs static drawdown
Educational guide. Drawdown calculation methods vary by firm and program — verify the exact definition for your account. Not financial advice.
Frequently Asked Questions
6 questions answered
What is the difference between equity and balance-based drawdown?
Balance-based drawdown counts only closed trades, so an open losing position does not affect it until you close. Equity-based drawdown includes open floating profit and loss, so a position still running counts against your limit in real time. Equity-based is stricter and is the more common rule at prop firms.
Does ForRealFunding use equity or balance-based drawdown?
The daily loss limit is calculated from the higher of balance or equity and applies to both realised and unrealised losses — so floating losses count. ForRealFunding's published rules also describe the Pay After Pass daily loss limit as equity-based specifically. In practice, assume open positions count against your limits.
Can an open trade breach my account?
Under an equity-based rule, yes. A position deep in floating loss can take your equity below the threshold while the trade is still running, closing the account automatically. This is why 'I'll wait for it to come back' is the single most expensive sentence in funded trading — waiting does not avoid the loss, it just removes your ability to control when it lands.
Does floating profit help me under an equity rule?
It can work against you. Where the limit is measured from the higher of balance or equity, an open winner that raises your equity also raises the measuring point — so giving that profit back counts against you even though your closed balance never changed. Unrealised gains are not safely yours until banked.
How should I size differently under an equity-based rule?
Size for the worst excursion the trade might take, not for where your stop sits. A position that ultimately hits your stop may travel well past it intraday during a spread widening or a news spike, and under an equity rule that excursion counts. Leaving meaningful headroom between your normal risk and the limit absorbs it.
Which is better for a trader, equity or balance-based?
Balance-based is more forgiving, since only closed trades count. But equity-based rules are the industry norm and arguably reflect real risk more honestly — an open losing position is a real loss whether or not you have acknowledged it. The practical answer is to know which one you are on and size accordingly.
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