Maximum Adverse Excursion Explained

Definition

A per-trade risk limit. Your open unrealized loss on any single trade cannot exceed 30% of your start-of-day profit balance. For new or low-profit accounts, the 30% is calculated against the trailing threshold amount instead. This is not a daily loss limit — it can be hit and recovered from multiple times in a day, but repeated or extreme violations trigger warnings or account action.

Explanation

MAE acts as a real-time safety brake that monitors your worst unrealized loss during each individual trade. Unlike daily loss limits that reset each day, MAE violations can occur multiple times per day as long as you recover. The rule protects both you and the firm from catastrophic single-trade losses that could wipe out significant account equity.

Example

On a $50k funded account with $2,000 profit, your MAE limit is $600 (30% of $2,000). If you're long ES and the trade moves $650 against you unrealized, you've violated MAE and must reduce position size or exit.

Why It Matters

It prevents single trades from destroying your account and forces proper position sizing and risk management on every trade.

Common Misconceptions

• MAE is calculated on your total account balance

  Reality: MAE is calculated on your current profit balance or trailing threshold, not your total account size

• Once you hit MAE, your account is breached for the day

  Reality: MAE can be hit and recovered from multiple times per day - it's not a daily limit