Drawdown buffer (safety buffer)
A self-imposed limit inside the firm's actual limit — your guardrail before the firm's guardrail.
A drawdown buffer is the percent (or absolute dollar) inside the firm's published rule where you choose to stop. If the firm's daily loss limit is $1,250 and your buffer is set at 80%, you treat $1,000 as the real limit. The buffer accounts for slippage, latency, and the fact that you don't want to be making decisions exactly at the edge.
The pattern: published limit is for paperwork, buffer is for trading. By the time you've hit the published number, you've already breached. The buffer gives you room to flatten or get auto-flattened before the firm-side check fires.
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Related terms
- Trailing drawdown
A drawdown rule whose threshold moves up with every new equity high during the session, locking traders out of giving back winners.
- Daily loss limit
The maximum dollar amount you can lose in a single trading day before the account is breached.
- Auto flatten
An automated trigger that closes all open positions and cancels working orders when a defined risk condition fires.