Floating loss, also known as unrealized loss, represents the current decline in value of your open positions, which affects your equity but not your balance until the trade is closed. If equity reaches or falls below the drawdown limit at any point, it constitutes a breach, even if the position later recovers in profit.
Balance vs. Equity
Balance is the value of your account based solely on closed positions, including realized profits, losses, commissions, and swap. Balance is used for daily drawdown calculations, such as the 5% daily limit on a 2-Step account
Equity includes your balance plus the unrealized profit or loss from all open positions. Without open trades, equity equals balance.
In a balance-based daily drawdown, the daily limit is determined from your starting balance at the beginning of the trading day, unlike some firms that base it on starting equity or the higher of the two. At Seacrest Markets, all plans follow this balance based method for daily drawdown. However, equity is always used for ongoing monitoring to detect if drawdown limits are reached at any point.
Example: On a $100,000 account with an open trade in a -$1,000 unrealized loss, equity would be $99,000, and balance would still be at $100,000. Closing the trade would update the balance to $99,000.
How Floating Loss Affects Drawdown
Floating losses from open positions can trigger breaches before you even close a trade. If open unrealized losses pull equity to or below the drawdown limit, the account fails, regardless of later recovery. This makes sense because it captures real-time risk exposure, preventing accounts from "surviving" massive dips only to close later in profit. In prop trading, the goal is sustainable habits, not gambling on reversals, and a momentary equity dip below the drawdown limit shows you exceeded the set limits, even if balance ends in positive.
It's possible for equity to briefly fall below the drawdown limit before recovering, which still counts as a violation. For example, if market conditions cause a rapid dip lasting just seconds, the system may not halt trading instantly. In such cases, your balance might be above the drawdown limit when the account is eventually disabled, but the equity breach has already occurred. Even momentary exposures below the drawdown limit trigger a breach, even if the system response isn't instantaneous.
Example: On a $100,000 2-Step account, the daily drawdown limit is $95,000. You open a trade without a stop loss, resulting in a -$6,000 unrealized loss - equity falls to $94,000, triggering a breach. Even if the market immediately reverses and you close the trade for a $1,000 profit (balance now $101,000), the violation stands, as equity exceeded the drawdown limit during the open position.
Watching your floating profit and loss (equity) closely is key to staying in control. It gives you a real-time look at how your open trades are performing. In prop trading, putting risk management first is key, like using stop losses and calculating your risk, so you can optimize your performance on your trading journey.
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