The monthly Darwinia contest rewarding DARWIN providers is now just over 1 year old.

1 year is early days in the bigger scheme of things, but long enough to reflect on pros and cons, and respond to feedback – both positive and negative – received from fellow users (and non-users).

So – what’s the verdict thus far? Should Darwinia continue going forward? What changes have been done, and ought to be expected going forward?

Here’s our take – we sincerely hope you’ll also give us an opinion!

Darwinian purpose

Darwinex’s mission is to democratise financial markets. We believe empowering the crowd is a cause worth backing, and a win-win for (most of 🙂 society.

We won’t get there without changing trader mentality. Far too many traders blow their (Darwinex and other brokers’) accounts not because their strategies are bad – but by trading with very high VaR. We’re convinced that there is a better leverage – investor leverage. That’s the thinking behind listing DARWINs at the DARWIN Exchange.

Further,  analysing over 20.000 track records has highlighted that strategies exhibiting high grades for certain attributes (Experience, Risk Management, Consistency, Timing, Performance and Scalability) seem to, over a statistically significant sample of strategies and time, exhibit better returns than those who don’t.

With that information & algorithms available to us, we thought – what better way to prove to traders that Darwinex breathes evolution – than putting our money where our mouth is?

Thus Darwinia was born, serving three core purposes:

• Helping existing customers: focussing on improving IA grades helps acquire healthy habits. These in turn help them live, and learn, for longer. This is good for them, for us and for future investors
• Attract talented traders: which other broker backs their customers with capital, paying 20% success fees?
• Test if/how strategies react upon receiving investor capital. Does investor backing condition their trading? This is something we’re keeping a close eye one as we gear up the DARWIN investor platform with AuM

On the plus side

1 year ago, as a broker (in addition to an asset manager) we wondered how to grow. The most obvious option was to advertise.

IG spends GBP 900 to 1100 for each first trade

Then we thought: rather than advertise to trade against customers (the way most do)… wouldn’t it make more sense to deploy capital with our customers? Wouldn’t this prove to sceptics – even if still at a relatively modest scale – that we mean business when we talk about investors backing them?

From a Public Relations stand-point – Darwinia is a good story. The Darwinia URL is one of the most recurring visits on all of Darwinex 🙂

As a by-product, it has resulted in IPOs of ever more investable DARWINs that we “cherry picked” from other brokers around the world – which is just bonus 🙂

It’s also been great in testing the investor platform and DARWIN scalability by trading medium AuM sizes with some of the more leveraged DARWINs. We’ve learnt valuable lessons when it comes to optimising investor execution which will come in handier as AuM in the platform mount.

Scope for Improvement

Not all PR has been good. Somehow, we gave the impression that Darwinia is Darwinex’s way to implicitly recommend which traders investors ought to back … which was NOT the point.

Firstly, because as a matter of principle, we’re a neutral venue. All we’re trying to do with levels / Darwinia etc. is improve the quality of DARWINs on offer, for everyone’s sake. This does somewhat break our neutrality –  but we think investors appreciate that trying to improve what’s on offer is a win-win for all involved. We just wouldn’t be credible if we didn’t invest ourselves.

Secondly, because as explained above Darwinia is partially a Public Relations exercise.

And thirdly, because investing in Darwinia winners  is NOT necessarily the best way to make the most out of DARWINs. Don’t get this wrong, we stand by the power of the diagnostic algorithms over a statistically significant sample of strategies and time. 

The question is: is a 1 month end-of-month snapshot of the top 20 strategies statistically significant? Is the difference between number 21 and number 12 so big as to justify picking one over the other because it happened to be on top at the cut-off time? Is the difference between 1 and 21 so big that it warrants an all or nothing outcome? Are there enough investable DARWINs at Darwinex to guarantee that the best 20 on any given end-of-month will be good enough over 6 months?

These, and other thoughts were what made us change Darwinia from:

1. Cash-prize only (remember, initially, we couldn’t do capital allocations as the investor platform wasn’t ready!)
2. Cash + Invested Capital: this had the downside that some cash winners got paid more up-front cash than DARWINs delivering performance over 6 months
3. Invested Capital only: which is our preferred long term option, as it’s aligned with the core “trade as a fund manager” educational message & purpose

So overall, we need to communicate better.

More investable traders are welcome, too. There’s still not enough “depth of bench” to guarantee that all Darwinia prize winners will yield 6 month returns – even if this wasn’t an isn’t our goal, as discussed above… which is just as well.

Darwinex has other means to generate ROI from Darwinia (as a broker!) not available to investors. Plus there’s product improvements on their way for investors to make the most of the algorithms… but more on that on this webinar.

Your take?

Anything else you feel belongs in this post? What can we do to communicate Darwinia better? Which changes would make it “fairer”?

Any thoughts highly welcome!!!