Floating Loss Rule
Overview
The Floating Loss Rule is designed to ensure traders maintain strict control over risk while positions are still open.
Under this rule:
Your total unrealised (floating) loss must not exceed 2% of your account balance at any time.
This means that while trades are active, the combined live drawdown across all open positions must remain within this limit.
If your floating loss exceeds 2%, this is considered a rule breach, even if the trade later recovers or account is in profit.
What is Floating Loss?
Floating Loss (also known as unrealised PnL) refers to:
- The current loss on open trades
- Based on live market prices
- Before the trade is closed
It constantly updates as the market moves.
Example:
- Account Balance: $100,000
- 2% Floating Loss Limit: $2,000
If your open trades are currently showing:
- Trade 1: -$800
- Trade 2: -$700
- Trade 3: -$600
Total Floating Loss = -$2,100
➡️ This exceeds the $2,000 limit
➡️ This would result in a breach, even though the trades are still open
How This Differs from the Exposure Rule
While both rules are risk management tools, they measure risk in very different ways:
Floating Loss Rule
- Based on live, unrealised PnL only
- Uses real-time market movement
- Stop Loss placement is NOT considered
- Focuses on what is actually happening right now
Exposure Rule
- Based on maximum potential loss
- Uses Stop Loss placement (if set)
- If no Stop Loss is placed, it uses floating loss instead
- Focuses on worst-case risk
Key Difference (Simple Explanation)
The Exposure Rule asks:
“How much could you lose?”
The Floating Loss Rule asks:
“How much are you losing right now?”
Important Notes
- The Floating Loss Rule is monitored continuously
- It applies to all open trades combined, not individual positions
- Market spikes or volatility can cause rapid changes in floating loss
- Breaches can occur even if no trades are closed
- Closing trades after exceeding the limit does not reverse a breach
Best Practices to Stay Within the Rule
To remain compliant:
- Monitor your open PnL at all times
- Avoid over-leveraging across multiple positions
- Be cautious during high volatility periods
- Reduce position sizes when running multiple trades
- Act early, don’t wait for losses to approach the limit
Summary
The Floating Loss Rule ensures traders maintain control over real-time drawdown, not just planned risk.
- Limit: 2% of account balance
- Based on: Live unrealised losses
- Applies to: All open trades combined
- Stop Loss: Not considered
This rule is essential for promoting discipline, consistency, and capital preservation in live market conditions.