Risk limits for master traders
To manage risks related to the amount of losses that may be incurred on copy-trading and MAM master accounts, assign the following types of risk limits to each master account:
- Daily risk limits
- The Loss limit (the maximum loss amount)
- The Maximum Drawdown (DD) risk limit
When a master account reaches at least one of the assigned risk limits, the following happens:
- All open positions on the account are closed.
- All pending orders are canceled.
- The account is blocked, and no further trading is permitted on this account until it’s unblocked.
When daily risk limits are reached, the account is unblocked automatically at the start of the next day, as per the MT server time (00:00).
When the Loss limit or Max DD risk limit is reached, the account can only be unblocked manually in the Back Office.
Risk limits can be assigned to master accounts only in the Back Office (for details, refer to Assign risk limits to a master account).
Daily risk limit calculation
The daily risk limit is the maximum trading loss that may be incurred on a master account in a single day.
Daily risk limits can be defined in the following two ways:
- As a fixed loss amount specified in the currency of a master account.
- As a percentage of the master account equity recorded at the start of a day, as per the MT server time (00:00), meaning that the limit is recalculated every day.
Daily risk limit as a fixed amount
When a daily risk limit is specified as a fixed amount, the equity threshold by reaching which the account is blocked is calculated as follows:
Equity threshold = Equity start - Risk limit value
where:
- Equity threshold – the threshold value for equity at which the master account is blocked
- Equity start – the master account equity at the start of a day, as per the MT server time (00:00)
- Risk limit value – the maximum loss amount allowed on the master account during a day
Example 1
Suppose the daily risk limit is set to $100, and the master account equity is $1,700 at the start of a day.
The equity threshold is calculated as follows:
1,700 - 100 = 1,600
If the master account equity reaches $1,600 during the day, the account is blocked until the start of the next day, as per the MT server time (00:00).
Daily risk limit as a percentage of account equity
When a daily risk limit is specified as a percentage of the account equity at the start of a day, the equity threshold is calculated as follows:
Equity threshold = Equity start x (1 - Risk limit value (%))
where:
- Equity threshold – the threshold value for equity at which the master account is blocked.
- Equity start – the master account equity at the start of a day, as per the MT server time (00:00).
- Risk limit value – the risk limit percentage assigned to the master account.
Example 2
Suppose the risk limit percentage is set to 10%, and the master account equity is $1,700 at the start of a day.
The equity threshold by reaching which the master account is blocked is calculated as follows:
Equity start = 1,700
Risk limit value = 10% (which is 0.1 in the decimal representation)
1,1700 * (1 - 0.1) = 1,530
If the master account equity reaches $1,530 during the day, the account is blocked until the start of the next day, as per the MT server time (00:00).
How deposits and withdrawals affect daily risk limits
The formulas below are used to recalculate daily risk limits whenever deposits or withdrawals are made on a master account during a day.
Daily risk limit as a fixed amount
Equity threshold = (Equity start + DW) - Risk limit value
where:
- Equity threshold – the threshold value for equity at which the master account is blocked.
- Equity start – the master account equity at the start of a day, as per the MT server time (00:00).
- DW – the amount of all balance operations, such as deposits and withdrawals, made on the account during a day. Withdrawal amounts are expressed as negative values and deposit amounts are expressed as positive values.
- Risk limit value – the maximum loss amount allowed on the master account during a day.
Example 3
Suppose the daily risk limit is set to $100, and the master account equity is $1,700 at the start of a day.
At a certain point during the day, the master account’s owner withdraws $200.
After withdrawal, the equity threshold is recalculated as follows:
Equity start = 1,700
Risk limit value = 100
DW = -200
1,700 - 200 - 100 = 1,400
Daily risk limit as a percentage of account equity
Equity threshold = Equity start * (1 + DW/Equity start) * (1 - Risk limit value)
where:
- Equity threshold – the threshold value for equity at which the master account is blocked.
- Equity start – the master account equity at the start of a day, as per the MT server time (00:00).
- DW – the amount of all balance operations, such as deposits and withdrawals, made on the account during a day. Withdrawal amounts are expressed as negative values and deposit amounts are expressed as positive values.
- Risk limit value – the risk limit percentage assigned to the master account.
Example 4
Suppose the risk limit percentage is set to 10%, and the master account equity is $1,700 at the start of a day.
At a certain point during the day, the master account’s owner withdraws $200.
After withdrawal, the equity threshold is recalculated as follows:
Equity start = 1,700
Risk limit value = 10% (which is 0.1 in the decimal representation)
DW = -200
1,700 * (1 + (-200/1,700)) * (1 - 0.1) = 1,350
Loss limit (the maximum loss amount) calculation
The loss limit is the maximum trading loss that may be incurred on a master account for all time.
When the sum of realized PnL and floating PnL calculated for a master account exceeds the loss limit value assigned to the master account, the account is blocked:
(Realized PnL + Floating PnL) < Loss limit value
where:
- Realized PnL + Floating PnL – the sum of realized PnL and floating PnL calculated for the master account at a certain point in time
- Loss limit value – the maximum loss amount allowed on the master account
Example 5
Suppose the loss limit of $350 is assigned to a master account. At a certain point in time, the realized PnL and floating PnL calculated for the master account are $200 and -$551 respectively.
Realized PnL = 200
Floating PnL = -551
Loss limit = -350
200 - 551 > -350
-351 > -350
The master account is blocked as a result of the risk limit being exceeded, and it can be unblocked only in the Back Office.
Maximum Drawdown (DD) risk limit calculation
When the Max DD observed on a master account exceeds the Max DD risk limit assigned to it, the account is blocked:
Max DD > Max DD limit value
where:
- Max DD – the Max DD currently observed on the master account.
- Max DD limit value – the limit value denoted as a percentage.
Note: You cannot set a Max DD limit to be equal to or less than the current Max DD value on the account. For example, if the current Max DD on a master account is 20%, the Max DD limit cannot be set to 20% or lower.
Example 6
Suppose the Max DD risk limit assigned to a master account is set to 20%. Once the Max DD observed on the account becomes greater than 20%, the account is blocked and can be unblocked only in the Back Office.