Introducing new filter feature

A recurring piece of investor feedback since the launch of the Investor Beta has been more powerful filtering tools to screen DARWINs. Investors visited the DARWINs section and did not know what DARWINs to pick.

Your wish is our command – so introducing Darwinex filters! Read on to learn how to use them!

1. Choose risk level

Visit the DARWINs section and choose what DARWINs you want to appear on your search.

Snip20150715_35

2. Define filter criteria

Now that you have chosen the risk level, click “Define Criteria” on the left to start the filter set up.Snip20150715_31

The window below will pop up. Add the criteria you’d like to search for. In the example below, DARWINs are filtered by some of their Investment Attributes (Experience, Consistency, Risk Management, Timing and Performance). Click “Apply” when done.

Snip20150715_23

3. Set up min. & max. parameters

Choose the parameters you want your DARWINs to meet (e.g. a score higher than 7 in the Experience attribute, 5 in Consistency, 7 in Risk Management, etc.).

The filter will automatically update and show the DARWINs that meet your requirements.

Snip20150715_25

Need a deeper insight into any of the DARWINs that meet your filter’s criteria? Just click the button in the “Info” tab to see further details with no need to visit that strategy’s section.

Snip20150715_51

4. Save your filter

It’s time to save your filter. Click the green “Save” button and give your filter a name. A window confirming that your filter has been saved will pop up.
Snip20150715_33

5. Invest and revisit

Now that you know which DARWINs meet your investment criteria, it’s time to optimise your portfolio. Make sure you revisit your filter every so often. If any given DARWIN stops meeting your criteria / any new DARWIN meets your criteria, it’s time to change your investments!

Of course, you don’t need to set up your filters every time you want to use them. Just click on the filter’s name at the top of the filters to revisit filters you saved in the past.

Snip20150715_28

That’s all! As you can possibly guess, this is but the first of many upcoming releases… the best is yet to come!

DARWIN Investor Risk

The risk in your DARWIN portfolio is managed by Darwinex to your personal risk appetite.

Sexy, isn’t it?

This requires you to understand the concept of equity at risk –  which sounds intimidating.

To some extent, this is deliberate: investing in trading strategies takes effort, and telling you otherwise would be misleading.

Screen Region 2015-05-08 at 10.56.30

You can set Equity at Risk for your portfolio in the Top Right Corner of the Portfolio Tab

But demanding also makes it great: if you put in the effort to learn the Darwinex interface, investable DARWINs pay back!

At any rate, we hope this post helps you understand what risk is, and how to pick yours!

DARWIN Risk

First of all: what IS risk?

In short, risk is uncertainty – you don’t know how your investments will do in the future, because the future is uncertain. The further you project, the less certain, because you can’t statistically rule out anything – e.g. winning a lottery two years in a row!!

What you can do is attach probabilities – and that’s what DARWIN Equity at Risk is about.

DARWIN investing is risking equity with DARWIN providers. You could win or lose some or all of it, in the future – and this is the essence of the 3 questions that define risk:

  • How much? What % of invested equity? The more risk, the higher potential wins and losses…
  • How likely? 5% likely is less risk than 50% likely…
  • How far in time? 1 month into the future is less uncertain than 1 year…

Darwinex Equity at risk measures the  loss you will suffer or exceed with 5% likelihood on any given month.

Another way to look at it is the loss you will likely suffer or exceed one every (1 / 5% =) 20 months.

How risky are individual DARWINs?

Individual DARWINs lose 5%, 10% or 20% or more of equity, the worst month in 20. If they’re no better than random, they can win 5%, 10% or 20% or more of equity, the best month in 20. If they’re better than random, winning e.g. 20% in a month is more likely than losing it – which makes them valuable investments.

Screen Shot 2015-05-08 at 11.03.01

You can filter by Equity at Risk level on the left hand side of the DARWINS tab

Risk is color coded in the interface: low risk DARWINs come with a green dot, medium is orange and high is red.

With 10% Equity at Risk, you will likely lose 10% or more of your equity 1 month (the worst!) every 20 months.

Note the likely. It’s a probable outcome over a representative DARWINs sample. You could lose (or win!) 25% in 2 consecutive months, but this is extremely unlikely to happen.

How does that compare with other investments?

Roughly speaking, this is the Equity at Risk in other investments:

  • A high quality bond of corporate debt loses 5% the worst month every 20 which makes it about as risky as a low risk DARWIN
  • A FTSE 100 ETF is about as risky as a medium risk DARWIN: both lose 10% or more the worst month in 20
  • A “High” risk DARWIN (20% loss) is as risky as a middle sized individual stock in the FTSE 100

How do I maximise returns?

Just like you play Monopoly.

In Monopoly you invest in real estate. The trick is first to buy individual assets with favourable income/rental to purchase prize yield. Smarter still is to combine them at relative locations that maximise the odds that other players drop by your  portfolio. Once your budget is invested, you monitor and look for opportunities that improve your odds.

Buy whatever maximises the odds that people drop by, and price paid

Invest your budget wisely – and wait for long term odds to favour you

At Darwinex you buy DARWINs. Savvy investors scan for individual DARWINs with high profit per risk odds, easy to spot since all DARWINs are apples to apples comparable for risk and come with 0-10 investment attributes. Then, they reduce portfolio risk by combining DARWINs that don’t move in unison. Once all equity at risk is invested, they monitor for better alternatives.

In a nutshell:

  1. You decide what you invest
  2. You decide what you risk – by setting the % of portfolio equity lost the worst month in 20
  3. You choose the DARWINs you want:
    1. Maximising individual odds of profit
    2. Minimising portfolio risk

There’s no way to risk more than you want: you can’t buy more DARWINs once you’ve used your portfolio equity at risk limit.

What are my odds for future profit?

To see them, all you do is:

  1. Click your equity at risk (top right hand side) in the DARWIN portfolio interface
  2. Allocate % of your portfolio to High, Medium and Low Risk DARWINs
  3. Pick a target time horizon (simulate for 1 month, a quarter, etc.)
  4. Simulate!
Access the simulation console from the Equity at Risk tab in the Portfolio

Access the simulation console from the Equity at Risk tab in the Portfolio

Our simulation engine will create thousands of random investment scenarios, and plot:

  1. The best and worst absolute scenario
  2. All deciles of the distribution (10%, 20%, etc.)

Screen Shot 2015-05-08 at 11.57.32

A decile of a distribution is a useful way to describe how differently lucky members of an otherwise equally risk loving investor population fare in a draw:

  1. Mr. luckiest (aka – the best investor)
  2. The 10th luckiest (10th decile)
  3. The 20th
  4. The 90th
  5. The most unlucky one

Bear in mind that you CAN actively skew the odds in your favour: DARWINs with high investable attributes do BETTER than random DARWINs who take the same risk. Assuming random performance provides a worst-case scenario – and that’s the way we like assessing risk when investing in our own platform.

Still unsure?

We offer personalised demos to clarify ANY investor doubts in several languages – sign up now!

DARWIN Investing – how to pick?

If we had to list one question that tops the list of FAQ since admitting live investors to the platform – it’s that.

Which DARWINs maximise long term return?

Is it the ones with the best return to date? Or the ones that had the lowest drawdown within each risk level?

Better still – how about those with the best ratio of historical return to historical drawdown?

Our neutral (DARWIN Exchange) stance

We’re a crowd-sourced marketplace.

Crowd-sourcing is about harnessing everyone’s talent for everyone’s benefit…. which implies that no-one is cleverer than the combination of the crowd at something. Rather it’s the sum of aligned, collective effort that delivers the best results.

If that’s our ethos – wouldn’t we contradict it by claiming that independent traders can beat Wall Street – and then lectured on how best to pick them?
Yes we would, and we won’t do that: we’re sure that Darwinex investors will be cleverer than Darwinex employees at picking DARWINs.

Which is the best news Darwinex could get, and the reason why we’ll stay neutral on this… lecturing people defeats the purpose of Darwinex.

Having said that, right now we operate with inside information as there’s tools cooking that we prototype but investors can’t yet use – which is why we make this one exception!

Is it risk / return ratios?

Good investments exhibit favorable risk / return ratios. But not every investment with favorable past risk / return ratios is smart.

To understand why, consider two alternatives, each with an amazing risk/return ratio last year:

  1. The best trader in the world (assume you knew for sure that he was the best trader) – he’s a good investment!
  2. The best simulation out of 10000 random simulations randomly trading foreign exchange for a year

Skilled or lucky trader?

Repeat: imagine you put 10.000 monkeys to trade 1 year ago. Every morning for the last year, each monkey pushed a button, which triggered a (random!) trade up or down the EUR/USD.

How much would you bet BET that the best  out of the 10.000 monkeys achieved mind-boggling risk/return (Sharpe, Sortino, etc.) last year? (I personally would bet everything I have!).

Would you take advice from last year’s lucky monkey on how to trade next year?

Right – a rational investor shouldn’t. If you want to expand on this – here’s a nice book.

How about skill?

Which brings us to – how to tell the best trader in the world from last year’s luckiest monkey?

A hard one to answer indeed! Facts will tell whether our approach is right or wrong – but here’s our thinking.

We don’t look at the result (WHAT risk/return ratio?), because both a (lucky) monkey and a great trader can achieve great risk/return in a year.

Rather, our algorithms analyse the process (HOW did the strategy achieve profits?). We strongly believe that a trader would pass the following set of questions, but a monkey would fail. Were your profits:

  1. Over a statistically significant number of independent trading decisions?
  2. With stable trade and strategy level risk?
  3. Through a consistent pattern in trade length and  profitability?
  4. Beating trades taken slightly earlier or later than yours (did the market consistently start going your way when you opened trades, and did it go against you after you left?)
  5. Beating an army of random monkeys taking the same risk as you? (note – the question is not absolute, which is what risk/return tracks, but relative to the random monkeys!)

The algorithms answer with a 0-10 grade for 1) Experience, 2) Risk Management, 3) Consistency, 4) Timing and 5) Performance. (10 is good, 0 is bad).

Is this the right way? Time will tell.

Common sense suggests that acing both the process (how you trade) and the result (what risk/return you make) you got is a more demanding filter than just risk/return. Obviously, an UBER lucky monkey can still ace both (thus the score penalty on strategies with low experience), but unlike the risk/reward test, the odds in this test are stacked against the lucky monkey.

So is risk/return meaningless?

Not entirely!

Different strategies are better suited to certain market conditions than to others. First to know this are DARWIN providers: some operate different DARWINs and dynamically allocate capital across them. Sometimes it’s not the DARWIN, but the market conditions that’s wrong. If a strategy pointed consistently upwards and now it points consistently downwards, perhaps the market inefficiency it was targeting is either temporarily or permanently gone.

Which is why it pays to also track all strategies by a DARWIN provider.

Some DARWIN providers list several strategies with high scores across the board. At any point in time, some win and some don’t. Some even blend strategies combining several individual DARWINs in a single blend-DARWIN where providers personally mix to their preference.

Note that this still comes back to skill: it’s a lot easier to produce a second skill based strategy once you’ve done your first. Which is exactly where the monkey fails!

Any more hints?

Yes. Our research suggests that consistency pays: a well rounded strategy obtaining high scores in each of the 6 criteria is a LOT more likely to profit in the future than one with low or unevenly distributed DARWIN investment attribute scores.

Given the choice between 1 month stellar performance and high DARWIN Investment Atributes (Darwinia) we choose skill. This is why DARWINs with high grades rack up Darwinia prizes even on bad performing months. We pay for skill because we know that skill pays in the long run in a way that luck does not. We could be right or wrong, but we put our walk where our talk is.

Why this post – if you’re neutral?

Isn’t it contradictory to say we’re a neutral venue and then start giving advice on how to pick DARWINs?

Yes it is.

We’re working on tools empowering DARWIN investors to come up with their own theories and/0r d0 their own research. Once we release them, this post will disappear. But until we’ve given you enough information to beat us, we sincerely our head-start coming up with the tools helps your DARWIN investing!

 

The Investor Platform – How to get early access

We’re recently opened the doors to our Investor Platform where you can trade DARWIN’s on our exchange.  This is a major milestone for Darwinex and our loyal traders and investors.

Access to the investor platform will be rolled out in phases so we can be sure to keep everything in check. To help this process, we have created a queue system.  Your place in the queue depends on a number of factors:

  • If you are a DARWIN provider
  • If you are a trader with us already
  • If you have tried the demo investor platform
  • If you have completed your personal details

You can also increase your place in the queue by sharing your unique invitation link over social media and with your friends.  If someone signs up using your link, you’ll move forward in the queue.

Here’s how to get early access:

Step 1 – Accept your invitation by clicking the link the top right of your dashboard panel where it says “REQUEST ACCESS”.

Step 1 - Accept the invitation

 

Step 2 – Once you’ve accepted the invitation, you’ll see your place in the queue as shown below.  Now you can complete your personal details and test out our demo system.

step 2

Step 3 – Then you can share your unique code and watch your place in the queue move to the top!

Step 3.1

 

 

Step 4 – You’ll see your spot in the queue each time you visit the dashboard.  Be sure to check back often to check your progress.

step 3

 

Don’t forget, your place in the queue depends on the factors outlined above too.  So if someone joins the queue and they have more points than you, they can skip ahead.  As a result, your place will go up and down.  The best thing to do is just to continue to use our platform as you do normally, play around with the demo and share the Darwinex revolution with your friends and family.

If you have any question or comments, please reach out to us at info@darwinex.com or in the comments below.

Trade safe!

The DARWIN IPO Process

darwin206 years ago today, Charles Darwin was born.  As you have probably gathered, the name of our company is inspired by him and his theory of evolution.

We’re a great believer in the concept of survival of the fittest and if there was a modern jungle in which you see this everyday, it would have to be the markets.

To survive as a successful independent trader, you have to keep your wits about you and continually learn and adapt to changing market conditions.  This why we created the Investable Attributes and our DarwinIA competition so that you can evolve your trading style and strategy in a sustainable way.  For Darwinex, the end result of all of this is to have your trading strategy listed on our exchange as a DARWIN.

The infographic below shows the 7 steps that lead to your very own IPO:

If you’d like to have your own DARWIN IPO, you can migrate an existing MT4 account to us or create a new one.  The migration process is straight forward and free.

To find out more, visit our main site or reach out to us at info@darwinex.com

DARWIN slippage, explained

Investopedia defines slippage as the difference between the expected price of a trade, and the price at which the trade is actually placed.

DARWIN slippage owes to DARWIN investors’ trades generally not clearing at their providers’ level, which makes DARWIN investor performance different from DARWIN performance.

By how much is transparently tracked and disclosed on the interface.

Slippage, tracked for your DARWIN portfolio

Slippage, tracked for your DARWIN portfolio

Why?

DARWINs track strategies traded with the Darwinex broker. Whenever a DARWIN provider strategy triggers a trade confirmation, we process a trade on behalf of investors in its DARWIN.

DARWIN Slippage happens because of:

  1. Latency: time lapses between provider and investor trade
  2. Liquidity: market liquidity is finite
  3. Tracking: a DARWIN investors cumulatively buys into any trades open before he bought into the DARWIN

Further,  currency risk introduces slippage when DARWIN provider and investor account base currencies differ.

Latency

DARWIN replication works as follows:

  1. Provider strategy: trades normally clear in 4 ms, in and out of the DMA order-book.
  2. Darwinex receives DMA trade confirmation
  3. Darwinex triggers investor trade request
  4. Investor trade request is fully cleared

Inevitably, time lapses (sub-second) from 1. through to 4. Markets moving all the time,  yields a difference between DARWIN provider and investor price. For typical DARWIN providers (no high frequency trading, trades taken several minutes at a time) this difference is random: sometimes providers “win” and sometimes “investors” win more.

Liquidity

Anyone entering the order-book for an asset inevitably moves the market price against him… unless their buy/sell order is matched by opposite demand providing “liquidity” or “market depth”.  You may read more on order-matching here.

Investor trades with significant size relative to prevailing market depth move the price against them, which results in systematic price differences against the DARWIN investors. The DARWIN Investor Appeal rating for scalability tracks the likelihood and impact on their performance. Watch out for strategies with low scalability scores: their effective performance must be considered in the larger context of slippage and may lag the DARWINs performance by non-negligible amounts.

Tracking

Tracking slippage happens whenever you buy into DARWINs with live trades.

Whenever the DARWIN provider opened the trade you’re now tracking, he paid the commissions that “bought” him performance over the full lifetime of the trade. Since you’re buying “mid-trade”, some of that performance may have accrued, perhaps over months. Think of it this way: you’re paying full commission, but not getting your full share of  performance.

The impact will be higher, the better the DARWIN: imagine a trader so accurate that his trades NEVER enter the red, and only accrue incremental P&L. In this situation, tracking will hit you worst.

Currency risk

DARWIN performance is calculated in terms of the provider’s base currency (in fact, it tracks performance on the provider’s equity).

Whenever this is different from your investor base currency, you’re exposed to currency risk for the P&L of each DARWIN trade.

This is because your DARWIN trade’s P&L, as an investor with currency risk, is driven by two sources:

  1. The trade’s performance: which affects the DARWIN provider as it affects you
  2. The evolution of your base currency vs. the DARWIN provider’s base currency for the duration of every trade, which affects you, but does NOT affect the DARWIN provider

Given the (short) average duration of DARWIN trade, the fact that we only admit EUR, GBP and USD base currencies (the most stable, generally speaking) and the fact that there’s plenty of trades for this effect to even out over time, the impact of currency risk is non-directional (i.e. sometimes you’ll win, and sometimes you’ll lose).

Relative impact

Relatively speaking, tracking, latency and currency slippage average out over time: investor performance will NEVER exactly match the DARWIN notional performance, but the error will be very small and fade out over time.

Liquidity slippage, on the other hand, does not, and will be the more severe:

  1. The less scalable the DARWIN
  2. The larger the size of investor funds tracking a given DARWIN, relative to the provider’s account size

Eventually, slippage for popular DARWINs WILL become so bad that investor performance will not compensate for the risk.

At this point, the strategy will have been scaled to the outmost, and the DARWIN  fulfilled its mission.