Daily loss limit is calculated based on 5% of the starting balance of each trading day.
This is the Account balance at the close of the daily candle on broker time.
For example, if the account balance is $100,000 and your equity is $101,000 (at the close of the daily candle), then your max daily risk for the following day will be 5% of the starting balance of the day $100,000 = $5000, and the profits on your P/L carried over from the previous trading day will be added to your daily loss limit. in this case, $5000 + $1000 = $6000.
The daily loss limit for this given day would still be $5000, but you’re allowed to lose $1000 more of the floating profits for a total of $6000.
Alternatively, if the account balance is $100,000 and your equity is $99,000 (at the close of the daily candle) then the max daily risk for the following day would be 5% of the starting balance of the day $100,000 = $5000, and the losing positions on your P/L results carried over from the previous trading day will be deducted to your daily loss limit, in this case, $5000 – $1000 = $4000.
The daily loss limit for this given day would still be $5000 initially, but since there’s a carried loss of -$1000 then will be deducted from the daily loss limit, and now a remainder of $4000 is left to lose before the account is flagged as Failed as per the daily loss limit.