BOARD

Inside Darwinex – Performance calculation, explained

24 October 2013

Understanding your Performance

Upon joining, many new movement members reach out stating: “hey guys, my performance statistics are different from Service Alfa (insert here your favourite alternative site to Darwinex) – they’re wrong!”

Whilst occasionally stuff DOES go wrong, more often than not differences owe to the fact that returns at Darwinex are calculated differently from most existing service providers.

Other services calculate performance on changes to account balance, which accounts for realised P&L (closed trades), but ignores unrealised P&L until open trades are closed.

Darwinex performance is measured on changes to liquidation value, which accounts for realised P&L (closed trades) as well as unrealised P&L (i.e. open trades).

This is the most common reason why returns “differ”. The rest of this post explains why we do things this way, and what implications this has.

Other services performance calculation – changes in account balance

Most services track changes to balance, i.e. accounting for

  • Starting account balance
  • Plus minus realised P&L
  • Plus minus cash flows
    • Cash paid in / deducted by your broker (swaps, commissions, etc.)
    • Monies deposited in / withdrawn by yourself

Performance over a given reference period is then driven by the % change in the resulting account balance.

Your Darwinex Performance – changes in mark to market

At Darwinex, all strategies’ Trading Journal reflect daily liquidation values, considering:

  • Starting account balance
  • Plus minus realised P&L: i.e. monies made or lost on closed positions
  • Plus minus cash flows as per above
  • Unrealised P&L: i.e. what-if P&L when closing ALL open positions at the end of every day

I.e. at the end of every day, regardless of whether trades are open or closed, we compute the hypothetical P&L for ALL open positions assuming that they were closed at the then going market price. The resulting account “balance” is called liquidation value for that particular day.

Your performance is calculated on changes to this liquidation value (purists would call this Mark-to-Market value) of equity. Which means, on any day where open positions are held overnight, the inputs into your performance calculation are different from the inputs at Service Alfa. Unsurprisingly, the output is also different!

Unrealised P&L – why do we care about it?

Darwinia rates strategies for DARWIN investor appeal (hence Darwinia): our standpoint is that of an investor replicating, with his own monies, all trading decisions in a strategy.

This makes us care about unrealised P&L as much as we care about account balance: let’s work through an example to illustrate why.

Market movements matter

Trader Ace with USD 10,000 balance opens a 5 lot long EUR/USD trade. For the next 3 days, this will be his only open trade.

This is what happens to the EUR/USD over the timeframe.

  • Trade open at 1.30135 on day 0
  • End of Day 0: EUR/USD is at 1.30115. Ace keeps the trade overnight
  • End of Day 1: EUR/USD is at 1.29250. Ace keeps the trade overnight
  • End of Day 2: EUR/USD is at 1.28815. Ace keeps the trade overnight
  • Day 3: trade is closed at 1.30250

Investor A replicates Ace’s trades with his own monies 1:1, i.e. using the same leverage as Ace. A uses Darwinex and service Alfa to monitor his investment.

This is the performance calculation investor A gets at Darwinex and Service Alfa [1]:

Snapshot EUR/USD TradeSlide Service Alfa
Liq. value  Daily Perf. Balance Daily Perf.
Trade open 1.30135 10,000.00$ N/A 10,000.00$ N/A
End of day 0 1.30115 9,900.00$ -1% 10,000.00$ Flat
End of day 1 1.29250 5,575.00$ -43,69% 10,000.00$ Flat
End of day 2 1.28815 3,400.00$ -39.01% 10,000.00$ Flat
Trade close 1.30250 10,575.00$ 211.03%(5.75% compounded over 3 days) 10,575.00$ 5.75%

Let’s get this straight: both methodologies are “correct”.

BUT: Darwinex performance contains more information than Service Alfa’s calculation – the unrealised P&L that drives changes to liquidation value.

This has implications that matter.

Implication 1: Performance “masquerades”

Investors are always keen for brilliant performance. As always in life, there’s two ways about it: the proper way, and a short cut.

The safe one is to develop trading skills, manage risk with discipline, and work 2,000 hours a year to develop and maintain a unique strategy that delivers risk-adjusted returns. But hey, we know that’s hard work …

So why not take the short cut? If performance equals realised P&L and unrealised P&L doesn’t matter, why not “short cut” mind-boggling balance growth as follows?

  • Trade winning? Close it and credit realized P&L
  • Trade losing? Keep “corpses” in the “unrealised P&L” closet
  • Repeat

Of course, too many losing trades will trigger a margin-call (the worse the strategy, the sooner). Meanwhile, high return, low risk growth in balance will have lured plenty of profitable investors using service Alfa…

Implication 2: Risk management

A more fundamental implication is risk measurement. Measuring risk on volatility in balance leads A to these conclusions:

  • Volatility: low – A’s money “only” moves from 100% to 105.75%
  • Drawdown: A “experienced” no drawdown in this trade
  • Rally: A “experienced” a rally of 5.75% of his money on this trade

I.e. A will completely ignore that his monies moved around 40% over the 2 days of the trade, and that at the end of day 2 he was 6,600 USD worse-off.

Of course, Ace could argue that the trade worked out just grand, with a profit of 5.75%. But what if A was leaving for a Himalaya trekking trip and asked Ace to close any open positions at the close of day 2? Boy that would have been ugly!

Summary: why?

Calculating net liquidation values requires us to source & maintain the mark-to-market price database for all the assets you ever traded, and that’s not a small & cheap database to populate, host and maintain.

Further, the way performance is calculated on the BASIC and the DARWINIA statistics is slightly different, as Darwinia is a lot more analytically involved. You will occasionally see a few decimal differences between one and the other, as they are updated with different precision and time frames… but they’re not wrong.

But then again, that’s the only way to create D-Leverage, no DarwinIA, no DARWINs, etc. If it requires us doing things differently from service Alfa – so be it!

 


[1] For simplicity, we’ve ignored swaps & any other overnight charges.

Last News

Updates to the MetaTrader 4 Platform

20 July 2017

We have been notified by MetaQuotes Software Corp. that as of 1 October 2017 (Sunday), support for Windows XP, Windows 2003 and Windows Vista will be discontinued for the MetaTrader 4 platform. As potential hardware capabilities can no longer be recognised, these operating systems are considered to be outdated. MetaQuotes has stated that Windows 7 […]

We have been notified by MetaQuotes Software Corp. that as of 1 October 2017 (Sunday), support for Windows XP, Windows 2003 and Windows Vista will be discontinued for the MetaTrader 4 platform. As potential hardware capabilities can no longer be recognised, these operating systems are considered to be outdated.

MetaQuotes has stated that Windows 7 is the minimum required operating system version for running MetaTrader 4. However, using the 64-bit versions of Windows 10 is strongly recommended.

Older versions of MetaTrader 4 will continue to work on Windows XP, Windows 2003 and Windows Vista. After 1 October 2017 (Sunday), updates will no longer be received and installers will not run on these operating systems. Without having your MetaTrader 4 up to date, you may not be able to execute trades or have guaranteed stability. If you do not have the minimum required operating system for Windows.

As always, feel free to contact info@darwinex.com if you have any questions or need a solution for this change!

And the DarwinIA winners are…

3 July 2017

The June edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period. Place DARWIN June’s notional allocation 1st UEI € 300,000.00 2nd VQB € 250,000.00 3rd JKC € 210,000.00 4th XIN € 170,000.00 5th DZL € 150,000.00 6th […]

The June edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period.

Place DARWIN June’s notional allocation
1st UEI € 300,000.00
2nd VQB € 250,000.00
3rd JKC € 210,000.00
4th XIN € 170,000.00
5th DZL € 150,000.00
6th QTN € 140,000.00
7th JJP € 130,000.00
8th UYZ € 120,000.00
9th LOM € 110,000.00
10th AXF € 110,000.00
11th VQG € 110,000.00
12th MBC € 100,000.00
13th PMZ € 100,000.00
14th GPZ € 100,000.00
15th KDU € 90,000.00
16th FSB € 90,000.00
17th SRK € 90,000.00
18th NEW € 80,000.00
19th ZUV € 80,000.00
20th CLA € 80,000.00
21st ATL € 70,000.00
22nd FMT € 70,000.00
23rd DZT € 70,000.00
24th SPI € 70,000.00
25th HIB € 60,000.00
26th ICA € 60,000.00
27th MOW € 60,000.00
28th ECC € 60,000.00
29th AOF € 60,000.00
30th RSR € 60,000.00
31st LVS € 50,000.00
32nd YHN € 50,000.00
33rd LDD € 50,000.00
34th SQG € 50,000.00
35th XXR € 50,000.00
36th JZH € 50,000.00
37th RWL € 50,000.00
38th OPK € 40,000.00
39th EZX € 40,000.00
40th GDM € 40,000.00
41st KYQ € 40,000.00
42nd VCT € 40,000.00
43rd STT € 40,000.00
44th QTB € 40,000.00
45th VTJ € 30,000.00
46th CJN € 30,000.00
47th LSC € 30,000.00
48th IZT € 30,000.00

Darwinex amended trading hours (US Independence Day)

29 June 2017

Please note the amended Darwinex trading hours for the upcoming US Independence Day holiday on 3 & 4 July 2017 (all times are in UK time).  Instrument 3 July 2017 (Mon) 4 July 2017 (Tue)  FX 22:05 Sun – 22:00 Mon 22:05 Mon – 22:00 Tue   DARWINS 22:05 Sun – 22:00 Mon 22:05 Mon – 22:00 Tue   COMMODITIES […]

Please note the amended Darwinex trading hours for the upcoming US Independence Day holiday on 3 & 4 July 2017 (all times are in UK time).

 Instrument 3 July 2017 (Mon) 4 July 2017 (Tue)
 FX 22:05 Sun – 22:00 Mon 22:05 Mon – 22:00 Tue
  DARWINS 22:05 Sun – 22:00 Mon 22:05 Mon – 22:00 Tue
 

COMMODITIES

   
Gold* 23:01 Sun – 21:59 Mon 23:01 Mon – 18:00 Tue
Silver* 23:00 Sun – 22:00 Mon 23:00 Mon – 18:00 Tue
Platinum* 23:00 Sun – 22:00 Mon 23:00 Mon – 18:00 Tue
Palladium* 23:00 Sun – 22:00 Mon 23:00 Mon – 18:00 Tue
US Crude* 23:00 Sun – 22:00 Mon 23:00 Mon – 17:45 Tue
Natural Gas* 23:00 Sun – 22:00 Mon 23:00 Mon – 17:45 Tue
 

 INDICES

 
Australia 200 23:00 Sun – 22:00 Mon 23:00 Mon – 22:00 Tue
 Europe 50 23:00 Sun – 22:00 Mon 23:00 Mon – 22:00 Tue
France 40 23:00 Sun – 22:00 Mon 23:00 Mon – 22:00 Tue
Germany 30 07:00m – 21:00 07:00m – 21:00
Spain 35 07:00m – 19:00 07:00m – 19:00
Japan 225* 23:00 Sun – 18:15 Mon 23:00 Mon – 18:00 Tue
 UK 100 23:00 Sun – 22:00 Mon 23:00 Mon – 22:00 Tue
 US SPX 500* 23:00 Sun – 18:15 Mon  23:00 Mon – 18:00 Tue
 US Tech 100* 23:00 Sun – 18:15 Mon  23:00 Mon – 18:00 Tue
Wall Street 30* 23:00 Sun – 18:15 Mon  23:00 Mon – 18:00 Tue
*Amended Darwinex trading hours.

 

As always, at info@darwinex.com we’ll be happy to assist you!

High volatility expected due to RBNZ Interest Rate decision today

21 June 2017

The Reserve Bank of New Zealand is releasing its Interest Rate Decision today (21 June 2017) at 21:00 GMT. As you may recall, trading is disabled from 20:59:59 to 21:01:00 GMT due to the low liquidity available on rollover, so please bear in mind that you won’t be able to open / close trades from […]

The Reserve Bank of New Zealand is releasing its Interest Rate Decision today (21 June 2017) at 21:00 GMT.

As you may recall, trading is disabled from 20:59:59 to 21:01:00 GMT due to the low liquidity available on rollover, so please bear in mind that you won’t be able to open / close trades from 20:59:59 to 21:01:00 GMT during this volatile news release.

When setting your SL / TP, kindly note that large gaps are expected when trading resumes at 21:01:00 GMT.

Please do not hesitate to contact us at info@darwinex.com should you need assistance.

Darwinex at Forex Day 2017

19 June 2017

In what is becoming a tradition, this year we again were in attendance at The ForexDay on 9th-10th June in Madrid. As in previous years, the event lasted for two days: on the first day (Friday 9th June), the organisers gave a trading course (for a fee) which ended with an international trading contest. On […]

In what is becoming a tradition, this year we again were in attendance at The ForexDay on 9th-10th June in Madrid.

As in previous years, the event lasted for two days: on the first day (Friday 9th June), the organisers gave a trading course (for a fee) which ended with an international trading contest. On the second day (Saturday 10th June), there were presentations about trading on two stages in the Official College of Architexts in Madrid, Spain (you can see the event programme here).

International trading contest (9th June)

This year, the international trading contest participants were Rob Hoffman, Davide Biocchi and Tarek Elmarhri. As well as being a great trader, Tarek is the Darwinex Ambassador for France, so you can imagine who we were rooting for…and as the good trader that he is there are no prizes for guessing who won 😉

And the winner is… Tarek, of course!You can see an interview with Tarek here (apologies for the poor sound quality).

General Public Event (10th June)

On Saturday, at 9 am, the doors opened for the general public event.  As in previous years, we were surprised by the amount of people queuing at the door to attend the event.  From Darwinex we want to congratulate the organisers for how well everything turned out.

The Trading Conferences soon got underway on the stages, including the conference that we had prepared.

Darwinex Conference (Expo Stage)

At 12.30 am the first Darwinex conference took place: ‘Independent trader experiences – their day-to-day trading’, in the which Mallku, Riddick and Mimago shared their experiences as traders (with their proven track records).

Mallku, Riddick and Mimago on stage

 

As can be seen in the photos, the room was filled to capacity… we actually had to leave the stage without answering all the questions so the next speakers did not run out of time! You can see a video of the conference here (NB: the conference starts at 2:19.40).

At Darwinex, we wish to thank all those in attendance because it was a pleasure to have you all there!

Darwinex Conference (International  Stage)

Following on the success of the conference in the Expo Stage, we then held another Darwinex Conference in the Sala Panorámica. As the in previous conference, the theme was ‘Independent trader experiences – their day-to-day trading’. This time the guest speakers were Integracore2, VPSEnry, ChicksFX and Mallku. Once again the Conference was a success and many of those in the audience approached out stand to ask us about Darwinex, DARWINs, DarwinIA, etc.

You can watch a recording of the conference here.

Also, you can watch interview carried out by ForexDay with some of the participants on their Youtube channel.

Event Highlights

Having come this far, it is fair to say that the event was a success: Tarek won the international trading contest, the conferences offered by our traders filled to capacity both halls (the conferences ended up with standing room only due to such a high attendance!)

Nevertheless, this does not explain why the event was such a big success for us: what really put such a big smile on our faces that day was all the traders and investors that visited us at our stand: as well as Mallku, Riddick, Mimago, Integracore2, VPSEnry and ChicksFX, who were in attendance as guest speakers, we had the enormous please of speaking with Yofxtrader, ElQuantitativo, Chema01, MCFD, Pedroml and GlobalMarkets, amongst many others. We offer you all our most sincere thanks. We attended ForexDay in 2013 as guest and we never could have imagined the amount of great traders (and great people) that would end up becoming part of this traders’ movement a few years later… and the best is yet to come!

SEE YOU NEXT TIME!

PS: According to our friends the best part of the day were the post-event drinks! 

Volatility expected due to UK general election

7 June 2017

Please note that high volatility is expected on GBP, EUR, CHF pairs as well as on UK and European indices on Thursday (8 June 2017) due to the UK general election. Also, liquidity providers are expected to significantly limit their liquidity, which can give rise to abnormal widening of spreads, potential increased amounts of slippage on executed orders and, eventually, […]

Please note that high volatility is expected on GBP, EUR, CHF pairs as well as on UK and European indices on Thursday (8 June 2017) due to the UK general election. Also, liquidity providers are expected to significantly limit their liquidity, which can give rise to abnormal widening of spreads, potential increased amounts of slippage on executed orders and, eventually, gaps in the charts due to the low liquidity available. If you plan to keep open trades on Thursday, please make sure you post margin / equity in your account ahead as volatility is expected to increase, especially around market close at 22:00 (UK time) on Thursday.

We reserve the right to change our margin requirements as we move closer to the election / depending on the outcome. Should we decide to introduce any changes to our trading conditions, we’ll endeavour to contact you via email, MT4 or by changes made to our blog / website ASAP.

D-Leverage & Risk Manager

Further, our Risk Manager will be more restrictive when replicating DARWINS’ trades to protect investors from increased volatility owed to the election.

As always, please do not hesitate to contact us at info@darwinex.com for support.