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.

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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!


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.

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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.)

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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!

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