The "Maximum Simulated Loss" or "Max Simulated Drawdown" rule serves as a demo account stop-loss mechanism. It is calculated by measuring the difference between your highest recorded demo balance from closed simulated trades and your current demo account equity. This calculation method differs from that used in 2-step demo accounts. The Max Simulated Drawdown rule applies consistently throughout all phases, including evaluation and simulated prop trading.
In the 1 Step demo account, your Maximum Simulated Drawdown is set at 6%, and it functions as a trailing drawdown that tracks your highest recorded demo balance until it reaches the starting demo account balance. Here are three examples that emphasize the trailing nature of this rule:
Example 1:
Starting demo account balance: $10,000
Maximum Simulated Drawdown: 6% of $10,000 = $600
Max simulated drawdown level starting off: $10,000 - $600 = $9,400
Example 2:
After the first day of simulated trading, you earn a simulated profit of $500, resulting in a new demo account balance of $10,500. Your Max Simulated Drawdown is recalculated based on this highest recorded demo account balance.
New Max Simulated Drawdown: 6% of $10,500 = $630
Max simulated drawdown level: $10,500 - $630 = $9,870
Example 3:
On the second trading day, if you incur a simulated loss of $100, your new starting demo account balance for the next simulated trading day becomes $10,400. However, your Max Simulated Drawdown level remains unchanged as it continues to trail your highest recorded demo account balance.
Max simulated drawdown level: $9,870
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