The Loss Limit feature protects your investment against unfavorable trading outcomes. It represents the maximum amount an Investor is ready to lose if the strategy performs poorly. When the Loss Limit level is reached, the Investor’s account is automatically disconnected from the Strategy, and positions are closed at market prices.
It’s important to note that the Investor’s profit does not factor into the calculation of the Loss Limit. The calculation is based solely on the Investor’s deposit or withdrawal amount.
Here are some examples illustrating how Loss Limit works:
- Investor’s Loss Limit is $300. The initial investment is $1,000. The Investor earns a profit of $500 and deposits an additional $400 into their account. In this case, the Loss Limit will be triggered when the equity reaches $1,100 ($1,000 + $400 – $300), and a total loss for the strategy amounts to $300.
- Investor’s Loss Limit is $300. The initial investment is $1,000. The Investor earns $500 and then decides to withdraw $400 of the profit. In this case, the Loss Limit will be triggered when the equity reaches $700 ($1,000 – $300), and a total loss for the strategy amounts to $300.
- Investor’s Loss Limit is $300. The initial investment is $1,000. The Investor incurs a loss of $200 and withdraws $400 of the deposit amount. The Loss Limit will be triggered when the equity reaches $300 ($1,000 – $400 – $300), and a total loss for the strategy amounts to $300.
- Investor’s Loss Limit is $300. The initial investment is $1000. There are no previously open positions on the account, and PnL = 0. The investor withdraws $400 of their deposit. In this case, the Loss Limit will be triggered when the equity reaches $300 ($1000 – $400 – $300), and a total loss for the strategy amounts to $300.