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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    • Monies deposited in / withdrawn by yourself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

German General Election (24 September 2017)

19 September 2017

Please note that German General Election is coming up this Sunday (24 September 2017). Exit polls are due to come out shortly after polling stations close at 17:00 (UK time) and preliminary results may be announced before Sunday market open 22:00 (UK time), which may result in market gapping in EUR related products. Please make […]

Please note that German General Election is coming up this Sunday (24 September 2017). Exit polls are due to come out shortly after polling stations close at 17:00 (UK time) and preliminary results may be announced before Sunday market open 22:00 (UK time), which may result in market gapping in EUR related products.

Please make sure you are comfortable with the open position exposure on your Darwinex account and that you have sufficient margin cover going into the weekend prior to market close at 22:00 (UK time) on Friday (22 September 2017).

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

And the DarwinIA winners are…

1 September 2017

The August 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 August’s notional allocation 1st $CJN € 300,000.00 2nd $UYZ € 250,000.00 3rd $DLF € 210,000.00 4th $XGU € 170,000.00 5th $VQB € 150,000.00 6th […]

The August 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 August’s notional allocation
1st $CJN € 300,000.00
2nd $UYZ € 250,000.00
3rd $DLF € 210,000.00
4th $XGU € 170,000.00
5th $VQB € 150,000.00
6th $JJP € 140,000.00
7th $XEC € 130,000.00
8th $LZL € 120,000.00
9th $OOC € 110,000.00
10th $LDR € 110,000.00
11th $LDZ € 110,000.00
12th $LVS € 100,000.00
13th $FTT € 100,000.00
14th $ERQ € 100,000.00
15th $PGH € 90,000.00
16th $QJW € 90,000.00
17th $DDY € 90,000.00
18th $HIB € 80,000.00
19th $KYQ € 80,000.00
20th $TTK € 80,000.00
21st $VTJ € 70,000.00
22nd $WPQ € 70,000.00
23rd $KAR € 70,000.00
24th $TOP € 70,000.00
25th $ELD € 60,000.00
26th $UEI € 60,000.00
27th $HFS € 60,000.00
28th $PFI € 60,000.00
29th $VFL € 60,000.00
30th $JCW € 60,000.00
31st $QTB € 50,000.00
32nd $HKM € 50,000.00
33rd $GPZ € 50,000.00
34th $PEW € 50,000.00
35th $XBX € 50,000.00
36th $YHN € 50,000.00
37th $BAN € 50,000.00
38th $LYX € 40,000.00
39th $JGC € 40,000.00
40th $AGD € 40,000.00
41st $SLR € 40,000.00
42nd $FGC € 40,000.00
43rd $RAO € 40,000.00
44th $THA € 40,000.00
45th $WZG € 30,000.00
46th $TKT € 30,000.00
47th $XMZ € 30,000.00
48th $RQH € 30,000.00

Updating our MT4 server

31 August 2017

Please note that we are updating our MT4 live server to Build 1018. Demo Server will be updated on 9 September 2017 and our Live Server will be updated on 16 September 2017. Should you experience any connectivity issue after the update, please click here to download the latest version of our MT4 terminal. Also, we […]

Please note that we are updating our MT4 live server to Build 1018. Demo Server will be updated on 9 September 2017 and our Live Server will be updated on 16 September 2017.

Should you experience any connectivity issue after the update, please click here to download the latest version of our MT4 terminal.

Also, we have been notified by MetaQuotes Software Corp. that as of 1 October 2017 (Sunday), support for MetaTrader 4 client terminal versions below 1065 will be discontinued, so please make sure you update your MT4 Terminal to the latest version before then.

Support for Windows XP, Windows 2003 and Windows Vista will be discontinued for the MetaTrader 4 platform on 1 October 2017, too. 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.

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

Darwinex Amended Trading Hours due to U.S. Labour Day

Please note the amended Darwinex trading hours for the upcoming U.S. Labour Day on 4 September 2017 (all times are in UK time). Important: commodities will close 5 mins ahead of market close to avoid liquidity shortages.  Instrument Trading Hours  FX 22:05 Sun – 22:00 Mon   DARWINS 22:05 Sun – 22:00 Mon  COMMODITIES   Gold* […]

Please note the amended Darwinex trading hours for the upcoming U.S. Labour Day on 4 September 2017 (all times are in UK time).

Important: commodities will close 5 mins ahead of market close to avoid liquidity shortages.

 Instrument Trading Hours
 FX 22:05 Sun – 22:00 Mon
  DARWINS 22:05 Sun – 22:00 Mon
 COMMODITIES  
Gold* 23:00 Sun – 17:55 Mon
Silver* 23:00 Sun – 17:55 Mon
Platinum* 23:00 Sun – 17:55 Mon
Palladium* 23:00 Sun – 17:55 Mon
US Crude* 23:00 Sun – 17:40 Mon
Natural Gas* 23:00 Sun – 17:40 Mon
 INDICES  
Australia 200 23:00 Sun – 22:00 Mon
 Europe 50 23:00 Sun – 22:00 Mon
France 40 23:00 Sun – 22:00 Mon
Germany 30 07:00 – 21:00
Spain 35 08:00 – 19:00
Japan 225* 23:00 Sun – 18:00 Mon 
 UK 100 23:00 Sun – 22:00 Mon
 US SPX 500* 23:00 Sun – 18:00 Mon
 US Tech 100* 23:00 Sun – 18:00 Mon
Wall Street 30* 23:00 Sun – 18:00 Mon
*Amended Darwinex trading hours.

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

Introducing conditional orders

23 August 2017

Regular DARWIN investors know best – DARWINs can be leveraged for active management in addition to passive investing. Having said that, one thing many have rightfully requested were conditional orders. How about: Stop my loss if a DARWIN now quoting for 137 drops to 122?, or Take my profit once my DARWIN currently listing at […]

Regular DARWIN investors know best – DARWINs can be leveraged for active management in addition to passive investing.

Having said that, one thing many have rightfully requested were conditional orders.

How about:

  1. Stop my loss if a DARWIN now quoting for 137 drops to 122?, or
  2. Take my profit once my DARWIN currently listing at 225 touches 240?
  3. Setting a Buy Limit order to buy a DARWIN when its quote goes below X?

Introducing Conditional Orders

Yes – conditional orders are already available in demo mode!

Try your demo portfolio now!

They’re here in that they’re already available in demo mode in the production environment. And that’s why they’re almost here. Since this is a reasonably complex functionality, we thought it best to launch conditional orders in demo mode and defer deployment in the live funds platform until we’ve gathered your feedback. On that note:

  1. We’ve scheduled an explanatory webinar for the 29 August 2017. You can register for our webinar here.
  2. We’ve drafted a detailed guide on how to use the functionality.
  3. We will be grateful for your feedback in:
    1. Identifying bugs
    2. Improving the FAQ documentation
    3. Improving the implementation

Note that conditional orders won’t be available in the mobile app. We’ll wait to roadtest the desktop application in demo mode until we’re all comfortable that things are working as expected.

As ever, info@darwinex.com will be delighted to take your feedback or clarify any questions as they no doubt will arise.

Trade safe everyone!

Darwinex amended trading hours for UK Bank Holiday (28 August 2017)

Please note the amended Darwinex trading hours for the upcoming Bank Holiday in the UK on 28 August 2017 (all times are in UK time).  Instrument Trading Hours  FX 22:05 Sun – 22:00 Mon   DARWINS 22:05 Sun – 22:00 Mon  COMMODITIES   Gold 23:00 Sun – 22:00 Mon Silver 23:00 Sun – 22:00 Mon Platinum 23:00 Sun – 22:00 Mon Palladium 23:00 Sun – 22:00 Mon US […]

Please note the amended Darwinex trading hours for the upcoming Bank Holiday in the UK on 28 August 2017 (all times are in UK time).

 Instrument Trading Hours
 FX 22:05 Sun – 22:00 Mon
  DARWINS 22:05 Sun – 22:00 Mon
 COMMODITIES  
Gold 23:00 Sun – 22:00 Mon
Silver 23:00 Sun – 22:00 Mon
Platinum 23:00 Sun – 22:00 Mon
Palladium 23:00 Sun – 22:00 Mon
US Crude 23:00 Sun – 22:00 Mon
Natural Gas 23:00 Sun – 22:00 Mon
 INDICES  
Australia 200 08:10 – 22:00
 Europe 50 23:00 Sun – 22:00 Mon
France 40 23:00 Sun – 22:00 Mon
Germany 30 07:00 – 21:00
Spain 35 08:00 – 19:00
Japan 225 23:00 Sun – 22:00 Mon
 UK 100* Closed
 US SPX 500 23:00 Sun – 22:00 Mon
 US Tech 100 23:00 Sun – 22:00 Mon
Wall Street 30 23:00 Sun – 22:00 Mon
*Amended Darwinex trading hours.

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