Darwinex & IBKR Jan-2021 Release: New Assets, New Account Types & Multicurrency

Photo by Markus Winkler on Unsplash

 

We have some exciting news we’d like to share with you about our Interactive Brokers offering.

  1. We’ve added EUR and GBP to the available account currencies eliminating the restriction to deposit to your Interactive Brokers account in USD only.
  2. We’ve enabled two new account types: Classic and Darwin.

Classic accounts currently offer all USD-denominated US Stocks. More assets (ETFs, Futures) are coming soon.

Darwin accounts offer a restricted subset of assets available for trading + the soon-to-be-available ability to list your strategy on the DARWIN Exchange.

Listing your trading strategy on the Exchange will enable you to:

  1. Attract investor capital to back your strategy
  2. Legally charge 15% performance fees on investor profits on a High-Water Mark (HWM) basis.

Already open IBKR accounts are now considered Darwin accounts. Please contact us if you have such an account and would like to change it to a Classic account. Kindly note that it’s not possible to change the currency of the account.

We hope you’re just as excited as we are, and look forward to receiving your account application soon. Sign up here to receive information about how to apply and notifications about future releases.

The New "Funds" Section Replaces The "Wallet"

The New “Funds” Section Replaces The “Wallet”

We’ve been long aware that the information we were showing you about money movements and P&L was scarce. Sometimes it could be even confusing. That’s why a few months ago we got the ball rolling to redesign your Wallet. Here’s the result.

More information, easier to digest

The new “Funds” section extends the scope of the information we show you about your money. Besides wallet movements, you can also check, at a glance, the P&L of your trading and investing activity. We’ve also moved Tax reports from your “Settings” to the new “Funds” section. Information about deposit and withdrawal conditions is now more handy as well.

Funds

My funds

This is the main page of Funds. You’ll see the equity in your different accounts. You can also add/withdraw funds and make transfers between the Wallet and your accounts. It offers the features that were available before in the Wallet but in a more intuitive way.

P&L

Here you’ll see the breakdown of the results of your trading and investment activity. In a graphic way, covering both P&L and other earnings.

Wallet movements

Here you’ll see the details of all the movements between your accounts. Deposits, withdrawals, performance fee and rebate movements will also appear here. You’ll also find buttons to add funds or do transfers between your accounts.

Tax reports

Here you can download your tax reports. Before, you had to go to “Settings” for this.


With this update, we’ve also moved all secondary menus to the left vs the upper part of screen where some of them were still located before.

We hope that this change helps you to have a better view of your money movements and P&L within Darwinex.


Photo by NORTHFOLK on Unsplash

US stocks

Trade US stocks with a minimum size of 1 stock

Talented stock traders have now one more reason to be with Darwinex.

Since we introduced stock CFDs in 2018, the smallest sizes were 1, 5, 10 and 20 shares depending on the stock price, which was a barrier for small accounts.

We now reduce the smallest tradeable size to 1 share without minimum commission. This applies to ALL shares offered by the Darwinex broker. Currently over 200 US shares.

With this change:

  • We lower the entry barrier for investing in share CFDs, and
  • increase the capacity of the traders to manage their risk.

This adds to the other advantages of being with Darwinex:

And let’s not forget the usual advantages of trading DMA single stocks with us:

We are working in parallel on several other stock-related initiatives:

Keep an eye on our news in the second half of 2020!

nuevo-d-score

The New D-Score

On 1 August 2020 we’ll release a completely revised version of the D-Score.

In this post we explain:

  1. The origins of the D-Score
  2. What we’ve learned over time
  3. The new approach of the D-Score
  4. Effects on other features
  5. Darwinex’s use of the D-Score

TL;DR – The D-Score calculation is now much simpler, using only Quote data with zero dependence on Investment Attributes / Scores. Darwinex to continue using D-Score for risking proprietary company capital.


1. The origins of the D-Score

The D-Score was born in 2013, long before the launch of our talent and capital Exchange. At that time, our goal was to automate the identification of the best traders in the world. The intention was to give them visibility so that they could attract investor capital on the future Exchange.

At that time -even now- most signal services listed strategies using simplistic criteria. Really good traders just didn’t stand out. One had to have trading knowledge to find the proverbial needle in the haystack, a source of great frustration for both good traders and investors.

If we found that algorithm, we could empower non-trading clients to be successful. Talent, on the other hand, would perceive us as the only technology provider that genuinely cared about them being successful. The latter is something that, in our humble opinion, we’ve achieved.

So we started with this goal in mind. Along the way, we discovered that reliability of returns heavily depends on risk management. In order to normalize results, it was necessary to consider risk at the level of each position taken on the market by a strategy, and not simply the risk of the strategy as a whole.

ExampleA strategy opens 9 trades with 1:1 leverage that loses 10 pips on each of them. Then opens another trade with 100:1 leverage and gains 10 pips. The signal generates positive returns. But is this a good signal? Also, what leverage should we allow for the last trade to consider it representative of the previous sample? 5:1? 10:1?The clearest and most common case of this type of trading is the martingale, but there are many variants.

This led us to create an algorithm capable of eliminating the possibility of statistical illusions. We also discovered that the best way to market the signals is via a product that enabled them to be comparable on an apples-to-apples basis. The DARWIN.

A DARWIN is the transformation of a signal into another where the individual leverage per trade or position doesn’t generate false illusions of profitability.

Alongside creating the DARWIN, we continued working on the talent-identification algorithm.

Besides measuring signal quality, the algorithm had to meet the following criteria.

  1. Provide investors enough information to enable confident decision-making, while protecting the intellectual property of the signal provider.
  2. Be dissectable into separate units. This is how attributes were born! We wanted to offer traders transparency and ideas for improvement.
  3. Be independent of the risk level.
  4. Be valid for any type of asset, as long as the risk was only a function of its volatility. This made us exclude options from eligible asset classes.
  5. Be valid for any type of trading operation.
  6. Be impervious to deceptive practices.

It’s important here to emphasize that the D-Score was born much earlier than the DARWIN asset class itself. More than 2 years earlier in fact. In spite of this, we continued working on it once the asset class was born as we conceived it as independent from the risk level.

2. What we’ve learned over time

What if we started developing the D-Score now?

“Now” meaning after several iterations of the asset class and more than 10,000 created DARWINs?

We’d most likely develop a different D-Score.

The complexity of the D-Score we’re leaving behind is a consequence of its evolution.

Now that we have the data, now that we’ve performed numerous analyses, we have come to the following conclusion:

Using only DARWIN quote data we can distill a more predictive D-Score than the current one. There is no need to use the investible attributes.

This is so because all risk normalization is already factored into the DARWIN quote. Hence the quote is a noise-free signal.

The D-Score we’re leaving behind was an important step in the classification of financial assets as it allowed us to compare strategies of different risk levels. But in the presence of noise-free signal, it is better to use only that to determine the quality of a DARWIN.

The constraints we imposed on ourselves in creating it, especially the need to calculate it from independent attributes, has prevented us from iterating the D-Score and its attributes as much as we would have liked.

The diversity of factors that influenced it (attributes, weights, history, assets) had brought it to a point of no evolution.

We all knew that we needed to improve, but we didn’t know how.

The only possible way was to simplify its calculation and make it independent of the attributes.

These years have also shown us the value of investible attributes. While they don’t have predictive capacity on their own, they do help to understand the type of the trading strategy.

Capacity, timing, loss aversion, market correlation, etc. are indeed metrics of great value, and we’ll continue to maintain and improve them over time.

Now that they don’t influence the D-Score in any way, we’ll be able to improve them without the fear of knock-on effects on the D-Score, as was the case in the past. Therefore, we expect a lot of value creation on this side.

The new approach is to have:

1. a value that, for Darwinex as an investor, determines the potential return of a DARWIN: this is the D-Score and,

2. attributes that describe such performance.

Investors are of course free to use them (or not) as they see fit.

ExampleThere will be DARWINs with a D-Score of 80 and Mc=2.Presented this way, the D-Score and attributes provide more valuable information than they do at present, affording Darwinex a more neutral position than before.

3. The new approach of the D-Score

Our research has led us to the following conclusions.

  1. A DARWIN’s Quote (price) can be used to determine its ability to generate future returns.
  2. Investment attributes provide information on how strategies achieve their returns. This is useful, e.g. for describing the behaviour of a strategy without the need for traders to describe it themselves.
  3. The best strategy to invest in DARWIN assets is to invest in those that in the medium term (2-3 years onwards) have been able to generate returns, and currently have a positive momentum.
  4. DARWINs that stop performing change the ‘‘shape’’ of their upward curve. In trading jargon, the breaking of a trendline is usually an indicator of strategy exhaustion.

Points 3 and 4 are what we have attempted to summarize in a single metric, the D-Score, and the results are promising.

Going forward, improving the D-Score will be easier. We’ll announce changes as a change of version.

Being considerably less computationally expensive, the D-Score will now be updated once every hour.

Based on data from all active DARWINs taken on July 15th (activity in the 21 trading days prior to this date), the mean D-Score is 39.70 according to the new version versus 35.51 according to the old version. The DARWIN with the highest D-Score has a value of 88.80 (new) vs. 85.80 (old). 62.07% of the DARWINs improve their D-Score. In the group of the 50 with the highest AuM 66% improve it and in the group of the 50 with the most investors 62% improve it.

On a distribution curve, the comparison remains as follows:

The_New_D_Score

4. Effects on other features

4.1. Investable attributes

As mentioned earlier, we’ll continue to maintain them but they won’t have any effect on the D-Score.

We’ll soon discontinue the Performance attribute as it’s effectively redundant in the presence of the new D-Score.

Our plan is to simplify the calculation of the attributes, improve calculation frequency, and add additional attributes over time.

To simplify their use for non-trading clients, we plan to create a short automated description of the strategy from all its attributes.

4.2. DarwinIA Capital Allocation

We’ll continue to calculate rankings as before, but using the new D-Score. It will still be possible to land an allocation with a track record < 9 months, but never in the upper 50th percentile. Getting into the top 3 will be much harder, which we consider fair.

Starting August 2020 we’ll increase the max. monthly allocation from the current € 6M to € 7.5M.

In future editions, we’ll likely restrict participation if the Rs value is low. Rs is the only attribute providers should take care of to improve the quality of the resulting DARWIN.

4.3. Accounts without DARWINs

As the DARWIN quote is not available for accounts without associated DARWINs, D-Score calculation will be simpler. There may however be discrepancies between the D-Score value of an account without a DARWIN and of the value that same account has with DARWIN. Its calculation frequency will also be lower than for accounts with associated DARWINs.

4.3. Predefined filters

We’ll change some predefined filter criteria to adapt them to the new reality of D-Score.

4.4. D-Score rebates

We’ll raise the D-Score required to get a 20% discount on brokerage fees to 55 and maintain the limit of 60 to get a 40% discount.

5. Darwinex’s use of D-score

The new Darwinex Score will be -and we’ll communicate it as such- the ultimate metric we use at Darwinex to risk our own capital:

  • via the DarwinIA Capital Allocation (a programme to train providers to operate a strategy that has third party AuM), and
  • via the proprietary portfolio of DARWINs in which we invest our own capital.

So, the D-Score will be relevant for those providers who pursue Darwinex AuM.

:warning: The D-Score is not a recommendation to invest in DARWINs nor a guarantee of future profitability.


P.S. We’ve published a tool to consult approximate new D-Score values per DARWIN so that providers know what to expect beginning  1. August 2020 (London) . You’re welcome to post your comments and feedback on the relevant forum thread.

Pivot

A Better DARWIN for more investor profits and provider revenues

Photo by Marco Verch (License)

We’ve improved the DARWIN!

The new DARWIN goes live 1 June 2020.

On a like for like basis, new DARWINs pay providers more revenues by producing more uncorrelated investor profits with lower target risk. New DARWINs are the first step in a ladder that will gradually engage professional managers and investors… stay tuned.

Meanwhile, here’s the summary of what new DARWIN entails for:

  • Investors:
    • Lower Risk – new DARWINs are as risky as an Equity Index – 35% less risky than to date, to help investors overcome loss aversion,
    • 60% lower (wholesale) commissions, to grow investor profits, trust and ultimately, AuM,
    • Fees: new DARWINs carry 1.2% management p.a. and 20% success fee,
  • Providers:
    • AuM growth, as explained above,
    • More revenue for every unit of AuM and % performance (60% less Brokerage cost),
    • A new success fee split: investors pay 20%, Darwinex keeps 5% and pays providers 15%

We’ve prepared a website to lay out the Old to New Transition including:

  • Timeline: covering what changes, when,
  • Aggregate impact: comparing old vs new DARWINs (hint, NEW is vastly better),
  • Calculators and Charts for the impact on individual DARWINs,
  • Q&A to clarify any outstanding questions.

Play around at https://coda.io/@darwinex/pivot.

Then come back here and let’s discuss!

inversor minorista

Live: DARWIN Check-out

Today we’re rolling out an individual check-out page for every DARWIN on the Exchange.

A DARWIN check-out is a dedicated funnel for a DARWIN provider to on-board Friends & Family AuM to their DARWIN conveniently, legally and effectively. In this entry we:

  • Describe the Check-out feature (v1.0)
  • Explain why managers sourcing Friends & Family AuM build TRUST
  • Would like to encourage your to share your feedback

DARWIN Check-out – WhatIzIt???

The DARWIN check-out is step 3 in your budding Asset Manager career after:

  1. Becoming a DARWIN manager and
  2. Landing your seminal Darwinia seed capital

It’s designed for you to learn pitching to investors by starting with the most friendly investor audience you’ll ever have: your friends and family. And it works by showcasing your DARWIN

  • On mobile
  • Simply: it showcases only the information a new investor expects before committing capital (=trust!) to an investment product.
  • To the Point: your father-in-law will just see a clear call to invest (demo, for the time being), and 3 clicks after your DARWIN is in his demo portfolio
  • Ideally Forever: Your friends and Family will safely carry you in their “Darwinex for investors” Android / iOS app – track.

Whether or not they eventually add to their investment = TRUST is now 100% up to you.


How to Use It?

  1. Find your check-out URL in the sharing settings of your DARWIN page.
  2. Have a look at it and please share your feedback. Request features, react to what others requestand we’ll add them to the next evolution of the check-out!
  3. Join the channel #marketyouralpha we’ve created in the Darwinex Collective Slack space and share your experiences and questions there with other members.

If you’re unsure about the legal status when pitching to your investors, soon we’ll publish a brief explanatory video that covers why you’re squarely on the right side of legality and morality. In short, you’re safe as long as you don’t pitch your DARWIN “by way of business”. You can pitch it in your private circles but when you mention it on a public forum (your website, social media, YouTube, etc.) you should always clarify that you’re not giving investment advice. Again, post any questions here and we’ll be happy to clarify.


DARWIN Check-out – Why?

Darwinex fast-tracks manager “investability” because the faster managers mature, the better for them, investors, Darwinex and the broader Alpha eco-system.

Alas, most managers equate “investable = building a good track-record”… and yet this is only part of the equation. Moreover, it may not even be the most important part – if it were, most hedge Funds wouldn’t fail for operational failures or lack of investor capital.

This makes Investor AuM – NOT performance – are the ONE thing that makes everything else either much simpler or unnecessary for an aspiring hedge fund manager, because:

  • Investor AuM generate revenues,
  • Revenues
    • Buy you time and peace of mind to profit when markets move
    • Pay for cheap and scalable processes

Our Fintech facilitates your ONE thing through:

  1. The “Fin” layer -> our trading charges include regulatory cover to monetize Investor AuM
  2. The “Tech” layer -> our tech stack powers a Hedge Fund as a Service (Prime Broker, Front, Middle & Back-office technology) at 0 up-front or fix running costs

And here’s where you come in – for you to reap investor AuM, you must first seed TRUST.


How to source Investor AuM?

That’s precisely the WRONG question to be asking. Investor AuM is the outcome of a process fuelled by investor confidence – which is an asset you build one step at a time, in an endless manager tit for investor tat improvement loop:

  • Tit: Manager delivers performance (= builds trust)
  • Tat: Investors increase allocation (= rewards trust)
  • Repeat

Note that it’s tough to get going, but also investor AuM are so powerful because they beget a self-fulfilling prophecy:

  • the more investor AuM, the more revenue per unit of Alpha,
  • the more time & inner-confidence invested in your Alpha, the more robust your Alpha, the more AuM, repeat.

Like everything in life, the toughest step is not the last, but the first. When it comes to landing your first EUR/GBP/USD under management – note the infinite distance between

  1. Almost trusting = almost investing and
  2. not investing = not trusting

Introducing the DARWIN Check-out

The only way to overcome this chasm is layer by layer

  • One: De-couple your “manager” self from your “investor” self – which makes you your first investor in yourself. This is the first milestone in your Alpha Race.
  • Two: Every DARWIN is eligible for Darwinia, which lines you up nicely for the next Layer – Darwinex backs you with their capital, because you backed yourself
  • Three: Cherish your DARWIN, because it’s designed from the ground up to get you from
    • Your first 2 (yourself + Darwinia)
    • Your first 3 investor

That’s right.

If you want anyone to trust you, start by trusting yourself, do your best to deliver on that trust, and the rest will follow. This is the reason why Darwinex will expect you to back yourself first, before Darwinia backs you – and then you’ll have to leverage your Check-out to legally go pitch your Friends & Family: after all, if they don’t trust you, neither will anyone else in the world.

We hope you find this new feature interesting and please do give us all the feedback you can!