New Feature: The Effect of Spread on a DARWIN’s Purchase Cost

31 October 2018
The Market Owl

We’ve released a new feature affecting the process of buying a DARWIN which will benefit especially those investors who practice active investing with DARWINs.

It’s called “Quoted price” and incorporates the buying cost of a DARWIN due to spread.


Initial negative divergence and its root cause

There are investors who, due to the type of investing they practice with DARWINs, systematically receive an initial negative divergence upon buying.

This happens especially if they buy during the last 60 minutes before daily market close.

The quote of some DARWINs decreases during this period, therefore it could appear that there’s a buying opportunity, but this decrease is solely due to the widening of the spreads of the underlying assets.

When buying such DARWINs during this period, investors experience an immediate negative divergence in their investments.


How is the “Current quote” calculated?

We calculate the “Current quote” based on the sell price of underlying assets, i.e. the current quote shows the price for the investor who is already invested in the DARWIN.

 

buying cost of a DARWIN


How is the new “Quoted price” calculated?

If the DARWIN has an open underlying position at the time of purchase, the buy price of the assets is used for buying the DARWIN.

Buy prices are higher than sell prices due to spread, especially during the aforementioned period.

The “Quoted price” displayed from now on includes this difference and lets investors know beforehand the negative divergence their investment will experience immediately after buying the DARWIN.

 

quoted price


Additional alert to discourage buying

If the difference between the current price and the quoted price is 0.30% or more, we show an additional alert in order to discourage investors from buying the DARWIN at that moment in time.

The alert goes as follows: At the present time, the quoted price at which you can purchase this DARWIN appears to be abnormally high. This is most likely due to a temporary lack of liquidity in the underlying assets the DARWIN is currently invested in.

 


We hope you find the new feature useful in your investing.

And as always, we’d love to hear your comments and feedback!