At Impulse World, we believe that thoroughly understanding concepts like Equity and Drawdown is fundamental to your success as a trader. These indicators not only reflect your current performance but are also crucial for effective risk management.
What is Equity?
Equity is a fundamental concept in trading that reflects the total real value of a trading account at a given moment. It is calculated using the following formula:
Equity = Balance + Floating
Where:
Balance: The amount of money in the account without considering open positions
Floating: Refers to unrealized gains or losses from your open market trades
Why is Equity Important?
Equity provides a more accurate and current image of your trading account's performance. Unlike balance, which only reflects closed trade results, Equity also considers the impact of open positions. This means Equity varies in real-time with market fluctuations, providing a clear measure of how your active trades are affecting your account value.
Equity vs. Balance: Which is Better?
Although both Equity and Balance are valuable indicators, they have different applications and meanings:
Balance: Useful as a general reference of funds in the account, but does not reflect the current situation if there are open trades
Balance = Deposits + History - Withdrawals
Equity: Provides a real-time view of open trade impacts, crucial in a constantly varying market
Equity = Balance + Floating
At Impulse World, we prefer Equity as the primary indicator for evaluating trader performance, as it offers a more comprehensive and objective view of returns.
Why Do We Measure by Equity?
Our decision to use Equity as the primary measure is based on several key factors:
Real-time performance reflection: Provides an accurate and updated view of account performance
Effective risk management: Encourages constant awareness of market exposure
Informed decisions: Allows more timely decisions based on updated information
Objective and precise evaluation: Enables us to assess performance more effectively
Promotes professionalism: Encourages a more holistic and mature approach to trading careers
Understanding Drawdown
Drawdown is a crucial measure for risk management at Impulse World. We have two main types of Drawdown:
Daily Drawdown
The Daily Drawdown limit is set so that the difference between current Equity and Initial Day Equity does not exceed 5%.
Formula: (EQ_{ID} - EQ) / EQ_{ID} < 5%
Where:
EQ_{ID}: Initial Day Equity
EQ: Current Equity
Example: If a trader starts the day with an Initial Equity of $100,000, the Daily Drawdown limit is automatically set at $95,000. During the trading day, Equity must not fall below this limit.
If the Equity is $102,000 at the end of the day, the new Daily Drawdown limit will be $96,900 the next day. This calculation is automatically updated at market close, without the trader needing to make manual adjustments.
Maximum Loss
Maximum Loss is calculated to ensure that the total loss does not exceed 10% of the Maximum Equity reached.
Formula: (EQ_M - EQ) / EQ_M < 10%
Where:
EQ_M: Maximum Equity reached
EQ: Current Equity
Example: If a client starts a challenge with a $100,000 account, their maximum loss will be set at $90,000. If, through their trades, they reach an equity of $105,000, their maximum loss is updated to $94,500.
How Loss Limits are Updated After a Withdrawal in Funding Phase?
Each time you make a profit withdrawal, your account's loss limit—both total and daily—will be automatically adjusted based on the drawdown registered before the withdrawal. This adjustment more accurately reflects the account's financial status and ensures that loss limits are aligned with your account's performance up to that moment.
Practical Example of Loss Limit Adjustment
To illustrate this adjustment, let's consider the following example:
Initial balance: $100,000
Maximum equity registered: $110,000
Total loss limit established: $99,000 (90% of maximum registered equity)
Last equity registered before withdrawal: $105,000
Daily drawdown: 1%
Remaining drawdown for daily loss limit: 4%
Total drawdown: 4.54%
Remaining drawdown until reaching total loss limit: 5.46%
Withdrawal: $5,000
Initial equity after withdrawal: $100,000
In this case, after the withdrawal, the system will apply the loss limit adjustment based on the drawdown registered before the withdrawal. This means:
New total loss limit: $100,000 - 5.46% = $94,540
New daily loss limit: $100,000 - 4% = $96,000
This adjustment provides a loss limit that takes into account the evolution and previously accumulated losses of your account, offering more precise capital protection.
It's important to note that the daily loss limit, regardless of the daily drawdown prior to withdrawal, will be updated to 5% at the start of each day at 8 PM New York time, based on the initial equity of that new day.
Resetting Loss Limits When Reaching New PRO LEAGUE Levels
Each time you reach a new level in PRO LEAGUE, such as Impulse I, the loss limit will be automatically reset to 10% of the equity after withdrawal, regardless of any previously registered drawdown. This reset allows the trader to resume operations with a renewed loss limit, without the influence of previous drawdowns, so they can advance with greater flexibility in the next stage of their development in PRO LEAGUE.
This system ensures risk management more aligned with the real financial situation of the account, and reflects each trader's performance capacity fairly and precisely.
Calculation Time
It is important to highlight that, for the purposes of calculating Daily Drawdown, the day's start is established according to UTC time, specifically at 00:00 UTC. This time marks the beginning of a new trading day on our platform and is the moment when the Initial Equity is determined for the respective day
Remember, trading involves risks, and a deep understanding of these metrics will help you navigate markets with greater confidence and professionalism.