What is Daily loss cap?

What does Daily loss cap mean in practice?

It turns an open-ended bad day into a bounded one. Some of the worst outcomes in automated trading come from a strategy that kept going after the conditions it was built for had gone, and a cap is the simple guard against that.

It can be set as an amount or as a percentage of equity. A percentage scales as the account grows or shrinks. Like any limit it can also stop a strategy just before a recovery, which is the price of the protection.

A worked example

Illustrative only: a 2% daily cap on 1,00,000 stops the strategy once the day's realised loss reaches 2,000, and it stays off until the next session.

How to read or test it

Pick the cap relative to your typical daily range, so ordinary bad days do not trip it but a runaway day does. Express it as a percentage of equity so it scales. Decide in advance whether realised losses only or also open losses count, since they behave differently. Look back at past worst days in your backtest to see where a cap would have stopped trading, and what the strategy did afterwards. Review the setting whenever your equity changes substantially, so the cap keeps its intended size.

How AKQX handles Daily loss cap

AKQX includes a daily loss cap among its circuit breakers, and a Telegram alert covers related problems such as insufficient capital or margin.

See Risk management tools for the feature page.

A common mistake

Raising the cap mid-day to keep trading after it has been hit.

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