How is the Daily Simulated Drawdown calculated in the Nexus Challenge/Funded?

The Nexus Challenge is divided into a three phase format that emphasizes balance-based drawdown regulations, which dictate that daily loss limits are determined by the account balance at the start of the day.

Each day concludes with a reset of the drawdown limits at 5 PM EST.

Example 1: Starting Balance Drawdown

Consider an account that starts the day with a $100,000 balance. With a set daily drawdown limit of 4%, the permissible loss for the day amounts to $4,000. This sets the account’s lower threshold at $96,000. Any drop below this, whether due to realized losses (net losses) or unrealized losses (floating losses), would breach the drawdown rule.

Example 2: Net Profit Impact on Drawdown
In a scenario where a trader’s account increases from $100,000 to $103,000 due to a $3,000 profit from closed trades, the drawdown calculations are adjusted the following day. Starting with a new balance of $103,000, a 4% drawdown allows a higher loss limit of $4,120, thus setting the new threshold at $98,880. As the balance increases through profits, the absolute dollar amount the trader can lose before breaching the drawdown limit also rises.

Example 3: Net Loss Impact on Drawdown
Conversely, if a trader ends the day with a $3,000 loss, bringing the account down to $97,000, the following day’s calculations also adapt. A 4% drawdown on the reduced balance sets the loss limit at $3,880, lowering the threshold to $93,120. As the account balance diminishes from losses, the permissible loss in dollar terms decreases, tightening the financial leash for the next trading day.

Example 4: Effect of Floating Profits
If a trader has an open position showing an unrealized profit of $2,000, the equity would total $102,000. However, the drawdown calculations continue to consider the starting balance of $100,000. Consequently, the loss limit remains at $4,000, setting the threshold at $96,000. Should the equity fall beneath this level, it would trigger a violation of the drawdown rules. This maintains a buffer that allows the trader to absorb up to $6,000 in losses without breaching the limit, considering both the unrealized profit and the original drawdown rule.

Example 5: Impact of Floating Losses
Similarly, if there is an ongoing position with an unrealized loss of $2,000, this affects the equity, reducing it to $98,000 while the balance remains $100,000. The 4% drawdown is computed from the balance, thus maintaining the loss limit at $4,000 and the threshold at $96,000. In this situation, the trader has a reduced margin of only $2,000 for further losses before falling foul of the drawdown regulations.

Each of these scenarios highlights how daily profits, losses, and unrealized gains or losses interact with the specific drawdown rules of the Nexus Challenge, affecting financial strategy and risk management from one trading day to the next.

Note: Please ensure that your equity and balance do not fall below the daily loss limit or maximum loss limit, whether due to floating losses on open trades or realized losses on closed trades. Breaching these limits will result in the termination or cancellation of your account.