How Does the Daily Drawdown Work?

Cove Funded allows traders to have a Maximum Daily Drawdown of 5% for the 2 Phase Challenge based on their Initial Equity when starting a new Trading Day. Each day is over a 24-hour period, which starts at 5:00 PM Eastern Standard Time (EST) (Greenwich Mean Time (GMT) +3 or +4 (8:00 PM or 9:00 PM) which is subject to change based on Daylight Saving Time).  

It is important to consider that the Maximum Daily Drawdown (Loss) of 5% is based on the trader’s equity at the End of the Day (EOD) which is calculated at server time which is 5:00 PM Eastern Standard Time (EST). This includes Realized and Unrealized Profit & Loss (P&L) of the trader’s open positions. 

An example of the Daily Drawdown would be:  

If a trader has a starting balance of $100,000, 5% of their balance would equate to $5,000. If the trader’s account falls below $95,000 within any given day, they would violate the Maximum Daily Drawdown rule. 

In such a case, if the trader held a $100,000 account and lost $4,999 on their first day of trading, at the End of the Day (EOD) their new equity would be $95,001. This would set their Maximum Daily Drawdown for their second day of trading to $4,750.05c (5% of $95,001). 

However, if the trader started with an Account Balance of $100,000 and managed to make a profit of $5,000, the following day, the trader would have a starting balance of $105,000 which would increase his Maximum Daily Drawdown to $5,250 (which equates to 5% of $105,000). 

Note: Cove Funded, does not recommend trading one hour before and after the Market Rollover, due to bad market conditions caused by low liquidity and high volatility. 

How Do I Calculate the Max Daily Drawdown? 

The Maximum Daily Drawdown can be easily worked out through this simple calculation shown below: 

Initial Equity Balance (calculated at 5 PM EST) x [0.05] = Max Daily Drawdown. 

Ex. $125,000 x [0.05] = $6,250 (Max Daily Drawdown). 

Note: Exceeding the Maximum Daily Drawdown of 5% will result in the automatic failure of that respective challenge attempt. The Daily Drawdown rule applies to all three phases of every Funded Account Challenge (Phase 1: Evaluation, Phase 2: Verification, Phase 3: Funded). 

If you find this guide useful, click here to read about the Overall Drawdown.