BOARD

Darwinia ranking – unfair?

4 February 2016

This video explains our monthly Darwinia trading challenge: why we run it, how it works, and what to expect if you win the allocation. We hope you enjoy it!

We receive regular feedback pointing out that the outcomes of the Darwinia contest may not always foster our goal of democratising the markets.

For example, in response to last week’s post, Steven, mentioned:

“have been looking at the Darwins and the ranking. I spotted some traders that traded one of his/her strategies to 98% drawdown, however their respective D-score/ranking were not penalised. I wish one day the ranking algorithm will take into account for fairer outcome. After all I am sure your company do not encourage reckless risk management.
Cheers Steven”

Clearly, we share Steven’s concern – who likes reckless risk management – but as you’ll see, when you decide to do something one way, you have to stick with your decision, even if parts of it hurt.

This post will touch upon several aspects, including the technical details on the ranking, trader incentives, and how to solve this going forward. We sincerely look for input on this one – perhaps with your feedback we’ll find a better way!

Overrule the algorithms?

Darwinia is ranked weighting:

  1. Grades for the DARWIN based on the strategy,
  2. The Level as determined by those grades
  3. DARWIN performance for the natural month and
  4. A measure of activity (to make sure that high level DARWINs win without trading activity don’t contend whilst on holidays).

We’ve covered the mechanics of Darwinia levels elsewhere – the relevant point here is the fact that the DARWIN’s underlying strategy does NOT enter the equation. Which implicitly means that neither do its Drawdown, VaR level, etc.

Arguably relevant criteria like “he’s trading the strategy with very high VaR”, or “the trader traded his strategy to 98% drawdown” aren’t even evaluated. On account of this “shortcoming”, sometimes strategies with “reckless risk management” make the end of month cut for the 20 strategies that are awarded Darwinia capital for 6 months.

Shouldn’t we overrule the algos, draw the joker wildcard and introduce rules so that DARWINs with underlying strategy VaRs higher than X or Y  be disqualified from the contest etc. ?

Tempting! For starters, it may well save us some investing losses. But would that really help the underlying goal, in the long run?

We’ve thought this through, and think there’s a case for laissez faire (at least for now). If it proves too costly we may have to reverse course, but it’s important to share the pros of laissez faire.

We didn't invent this...

We didn’t invent this…

Arguments for laissez-faire

The first is transparency. Not tinkering with the rules.

If we’re the DARWIN exchange listing DARWINs – which are genuinely different from their underlying strategy – and control risk so that DARWINs run on 20% VaR, why introduce the underlying strategy into the investor equation? Doesn’t this send conflicting messages? The last thing we want is anyone accusing us of a non-transparent process.

The second is not judging people’s incentives. There’s enough gambling going on in the markets, and we’re clearly not here to encourage more. Then again, having spoken to hundreds of traders in the last few years, we realised there’s a (possibly small) subset of “rational gamblers”. Their argument is: I only manage e.g. 1000 USD, and I won’t be able to manage a meaningful amount for the foreseeable future. So I trade several promising strategies with deliberately outrageous risk. It’s my personal way to build a lottery ticket cheaper than anything offered in the gambling market.

Not everyone will agree, but provided the underlying strategies work, there’s logic to it. Indeed (some) DARWINs based on high risk strategies get good grades for long-ish periods of time –  compare DARWIN1, 2 and 3 with their underlying strategies. This begs two options. Option A is: the rating algorithms work, and the DARWIN based on the reckless gamble, with “investment grade” VaR, are investable for a while – in which case who are we to hide them from investors? Option B is: the rating algorithms need improvement, and we better get our act together to improve.

We welcome both. Simply “hiding” flaws in the algorithms or high risk in the closet would hurt the transparency of traders’ evolution, and paradoxically reduce everyone’s credibility.

The third is trust in market forces. Underlying strategies will always be visible to investors. Once hundreds of millions in Assets under Management (AuM) back DARWINs, presumably few investors will choose high risk traders, reckless risk however mitigated by the DARWIN, will put them off. Presumably even risk loving DARWIN providers will lower their VaR then… but we’re not there yet – our 0.5 MM capital allocation / month isn’t enough of an incentive for them to lower risk.

And last, but not least, there’s evolution. As AuM grow, Darwinex will both groom better traders in house (focussing on improving pays in the long run) and attract better traders who don’t know / can’t currently be bothered to join Darwinex. Nothing better to crowd out (rational or irrational) punters making the Darwinia cut every month, than higher density of good traders providing investable DARWINs.

When that happens, nothing would please us more than knowing that evolution worked its way through the ranking, without tinkering. Until then, the reality is that 90% of independent traders lose their shirts owing to nothing more than excessive risk taking. The only way to fix a problem is to acknowledge it – and that’s where we are right now.

Your thoughts?

Clearly, we couldn’t discuss this with users in length… so what’s your thought? Do you agree? Any argument we’re missing?

 

Last News
Market correlation

Our latest improvement in…The Market Correlation Investable Attribute

23 January 2018

In this blog post, we are going to explain the most recent improvements in the last investment attribute (IA) to join Darwinex’ ranks: Mr. Mc, AKA. Market Correlation. However, before we get our hands dirty, let me briefly explain what correlation is for those of you who are not familiar with this concept. Correlation is […]

In this blog post, we are going to explain the most recent improvements in the last investment attribute (IA) to join Darwinex’ ranks: Mr. Mc, AKA. Market Correlation.

However, before we get our hands dirty, let me briefly explain what correlation is for those of you who are not familiar with this concept.

Correlation is a statistic that measures the degree to which two variables move in relation to each other.

What are the 2 variables we use in Darwinex to calculate the Mc grade?

You are 100 % right! The relationship between your DARWIN’s return curve and the return curves in the underlying assets in which you trade.

Let me explain this further with an illustrative example.

Imagine that your DARWIN has yielded nice returns over the last year. As a result, 100% of Investors would think that you are a trading superstar and money would be pouring in into your DARWIN, right? Well, not that fast.

What if Darwinex’ algos discover that you have always been long EURUSD in 2017?

In this case, the return of your DARWIN will be 100% correlated with the EURUSD and you should not be awarded with any trading medal since you have basically made 1 trading decision in 2017: go long EURUSD.

In this extreme example, your Mc grade would be 0 which, in turn, would deteriorate your D-Score very badly, making it impossible to get a D-Score over 50, irrespective of the rest of the 11 investment attributes. Therefore, no AuM, no DarwinIA, no fame, no superstar status and an empty pocket 🙁

Darwinex Improves The Mc Investment Attribute

However, after having given this a lot of thought, we have reached the conclusion that this is not the most accurate way to measure the Mc attribute.

Well, to be totally honest with you, we already knew that this calculation was just an approximation. Nevertheless, we decided to implement it anyway for 2 primary reasons:

  • It would add much more value to our proprietary diagnostic toolkit
  • It would penalize “one-trick ponies” strategies which would likely prevent investors from investing in a “random” strategy -100% dependent on an exogenous factor, EURUSD evolution-

Why was our calculation only an approximation instead of 100% accurate?

This is due to the fact that, in the old Mc version, Darwinex didn’t take into consideration the DARWIN’s leverage, which is now considered to be a trading decision in and of itself.

Going back to our example, remember that your DARWIN has always been long EURUSD, imagine that the  leverage applied by our risk manager in your DARWIN, in order to offer an asset with a monthly target risk set at 10% VaR, had varied over time based on leverage changes in your underlying trading strategy. Modifications due to your technical or fundamental analysis/market conditions/predictions… on the EURUSD.

The DARWIN could have been using 5:1 leverage in some trades, 2:1 in others and then up to 8:1, etc. This way, both your DARWIN’s return curve and the EURUSD curve could look very different.

It is a fact that you have always been long EURUSD but your DARWIN could have been using very low leverage when the EURUSD went down, and more leverage when it went your way.

You’d thus be making a much better return % than the underlying asset in which you were trading.

So, after having thrown your strategy to the wolves, it turns out that you could still be trading superstar!

In summary, we have tweaked the Mc algo so we calculate its grade based on trades -not positions– considering leverage a trading decision in and of itself.

Please note that this change will improve accuracy of the Mc score in “medium-long term” strategies while not affecting scalpers or day traders.

Trade safe!

Darwinex Amended trading Hours for Australia Day (26 January 2018)

22 January 2018

Please note the amended Darwinex trading hours for the upcoming Australia Day on 26 January 2018 (all times are in UK – GMT time).  Instrument Trading Hours  FX 22:01 Thu –21:55 Fri   DARWINS 22:01 Thu –21:55 Fri  COMMODITIES   Gold 23:01 Thu –21:55 Fri Silver 23:00 Thu –21:55 Fri Platinum 23:00 Thu –21:55 Fri Palladium 23:00 Thu –21:55 Fri US Crude 23:00 Thu –21:55 Fri Natural Gas 23:00 Thu –21:55 Fri  INDICES […]

Please note the amended Darwinex trading hours for the upcoming Australia Day on 26 January 2018 (all times are in UK – GMT time).

 Instrument Trading Hours
 FX 22:01 Thu –21:55 Fri
  DARWINS 22:01 Thu –21:55 Fri
 COMMODITIES  
Gold 23:01 Thu –21:55 Fri
Silver 23:00 Thu –21:55 Fri
Platinum 23:00 Thu –21:55 Fri
Palladium 23:00 Thu –21:55 Fri
US Crude 23:00 Thu –21:55 Fri
Natural Gas 23:00 Thu –21:55 Fri
 INDICES  
Australia 200* *06:10  – 21:55 
 Europe 50 23:00 Thu – 21:55 Fri
France 40 23:00 Thu – 21:55 Fri
Germany 30 07:00 – 21:00
Spain 35 07:00 – 19:00
Japan 225 23:00 Thu21:55 Fri
 UK 100 23:00 Thu21:55 Fri
 US SPX 500 23:00 Thu21:55 Fri
 US Tech 100 23:00 Thu21:55 Fri
Wall Street 30 23:00 Thu21:55 Fri
*Amended Darwinex trading hours.

As always, at info@darwinex.com we’ll be happy to assist you!

Our Latest Improvement In … Chart Re-alignment!

19 January 2018

You already know that our incentives are 100% aligned with those of our clients –zero conflict of interest between Broker, Traders and Investors-, and this is something we feel VERY proud of in Darwinex. However, this was true to some extent as some of our tools had risen up in rebellion. In particular, the profile […]

You already know that our incentives are 100% aligned with those of our clients –zero conflict of interest between Broker, Traders and Investors-, and this is something we feel VERY proud of in Darwinex.

However, this was true to some extent as some of our tools had risen up in rebellion.

In particular, the profile of the DARWINs, displayed in the following sections, were slightly misaligned:

  1. Explore
  2. All DARWINs
  3. Any predefined filter
  4. Your Favorites
  5. Public User Profile
  6. A custom filter

Fortunately, the rebellion has not lasted long and we have been able to re-establish order…and alignment everywhere.

Trade safe!

Darwinex Amended trading Hours for US Martin Luther King Day (15 January 2018)

11 January 2018

Please note the amended Darwinex trading hours for the upcoming US Martin Luther King Day on 15 January 2018 (all times are in UK – GMT time).  Instrument Trading Hours  FX 22:05 Sun – 22:00 Mon   DARWINS 22:05 Sun – 22:00 Mon  COMMODITIES   Gold* 23:00 Sun – 17:59 Mon Silver* 23:00 Sun –17:59 Mon Platinum* […]

Please note the amended Darwinex trading hours for the upcoming US Martin Luther King Day on 15 January 2018 (all times are in UK – GMT time).

 Instrument Trading Hours
 FX 22:05 Sun – 22:00 Mon
  DARWINS 22:05 Sun – 22:00 Mon
 COMMODITIES  
Gold* 23:00 Sun – 17:59 Mon
Silver* 23:00 Sun –17:59 Mon
Platinum* 23:00 Sun –17:59 Mon
Palladium* 23:00 Sun –17:59 Mon
US Crude* 23:00 Sun – 17:44 Mon
Natural Gas* 23:00 Sun – 17:44 Mon
 INDICES  
Australia 200 23:00 Sun – 22:00 Mon
 Europe 50 23:00 Sun – 22:00 Mon
France 40 23:00 Sun – 22:00 Mon
Germany 30 07:00 – 21:00
Spain 35 07:00 – 19:00
Japan 225* 23:00 Sun – 18:00 Mon 
 UK 100 23:00 Sun – 22:00 Mon
 US SPX 500* 23:00 Sun – 18:00 Mon
 US Tech 100* 23:00 Sun – 18:00 Mon
Wall Street 30* 23:00 Sun – 18:00 Mon
*Amended Darwinex trading hours.

As always, at info@darwinex.com we’ll be happy to assist you!

And the DarwinIA winners are… (December 2017)

2 January 2018

The December 2017 edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period.     Place DARWIN Notional allocation 1st BAD € 300,000.00 2nd RDD € 250,000.00 3rd TDF € 210,000.00 4th ICA € 170,000.00 5th PUL […]

The December 2017 edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period.

 

 

Place DARWIN Notional allocation
1st BAD € 300,000.00
2nd RDD € 250,000.00
3rd TDF € 210,000.00
4th ICA € 170,000.00
5th PUL € 150,000.00
6th XYP € 140,000.00
7th TFS € 130,000.00
8th BLI € 120,000.00
9th CSP € 110,000.00
10th AGD € 110,000.00
11th VTJ € 110,000.00
12th DLI € 100,000.00
13th TLA € 100,000.00
14th IOG € 100,000.00
15th XMZ € 90,000.00
16th TXL € 90,000.00
17th RIC € 90,000.00
18th CJN € 80,000.00
19th IGU € 80,000.00
20th OOA € 80,000.00
21st KVL € 70,000.00
22nd PHI € 70,000.00
23rd CUK € 70,000.00
24th QTB € 70,000.00
25th NVL € 60,000.00
26th PEW € 60,000.00
27th BFT € 60,000.00
28th STT € 60,000.00
29th QFW € 60,000.00
30th PFH € 60,000.00
31st ELD € 50,000.00
32nd BDR € 50,000.00
33rd JZH € 50,000.00
34th NTI € 50,000.00
35th WBX € 50,000.00
36th CBY € 50,000.00
37th ZTY € 50,000.00
38th GED € 40,000.00
39th YYL € 40,000.00
40th VFL € 40,000.00
41st FMX € 40,000.00
42nd OOG € 40,000.00
43rd BLH € 40,000.00
44th ILM € 40,000.00
45th SZN € 30,000.00
46th RTO € 30,000.00
47th FXP € 30,000.00
48th LOM € 30,000.00

 

Have questions about DarwinIA trading challenge ? At info@darwinex.com we’ll be happy to assist you!

Darwinex Trading Hours for the 2017 Christmas & New Year Holiday Period

15 December 2017

Christmas is around the corner! Please find below the Darwinex Trading Schedule for the 2017 Christmas and New Year Holiday Period (all times are displayed in UK time and changes to regular trading hours are highlighted in red).   Instrument    Friday 22nd Dec   Monday 25th Dec   Tuesday 26th Dec FX 22:01 Thu – 21:55 Fri CLOSED 22:01 Mon – […]

Christmas is around the corner!

Please find below the Darwinex Trading Schedule for the 2017 Christmas and New Year Holiday Period (all times are displayed in UK time and changes to regular trading hours are highlighted in red).

 

Instrument 

 

Friday 22nd Dec

 

Monday 25th Dec

 

Tuesday 26th Dec

FX 22:01 Thu – 21:55 Fri CLOSED 22:01 Mon – 22:00 Tue
Commodities
Gold 23:01 Thu – 21:55 Fri  CLOSED 23:01 Mon – 21:59 Tue
Silver 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
Platinum 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
Palladium 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
US Crude 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
US Natural Gas 23:00 Thu – 20:00 Fri  CLOSED 23:00 Mon – 22:00 Tue
DARWINS 23:00 Thu – 20:00 Fri CLOSED 22:00 Mon – 22:00 Tue
Indices      
STOXX50E 23:00 Thu – 21:55 Fri  CLOSED CLOSED
GDAXI 07:00 – 21:00   CLOSED  CLOSED
SPA35 07:00 – 19:00   CLOSED  CLOSED
SPX500 23:00 Thu – 21:55 Fri  CLOSED  CLOSED
WS30 23:00 Thu – 21:55 Fri  CLOSED  CLOSED
NDX 23:00 Thu – 21:55 Fri  CLOSED  CLOSED
J225  23:00 Thu – 21:55 Fri CLOSED CLOSED
AUS200 23:00 Thu – 05:30 Fri CLOSED CLOSED 
FCHI40  23:00 Thu – 21:55 Fri  CLOSED  CLOSED
UK100 23:00 Thu – 12:30 Fri  CLOSED  CLOSED 

 

 

Instrument 

 

Friday 29th Dec 

 

Monday 1st Jan 

 

Tuesday 2nd Jan

FX 22:01 Thu – 21:55 Fri CLOSED 22:01 Mon – 22:00 Tue
Commodities
Gold 23:01 Thu – 21:55 Fri  CLOSED 23:01 Mon – 21:59 Tue
Silver 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
Platinum 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
Palladium 23:00 Thu – 21:55 Fri  CLOSED 23:00 Mon – 22:00 Tue
US Crude 23:00 Thu – 20:00 Fri  CLOSED 23:00 Mon – 22:00 Tue
US Natural Gas 23:00 Thu – 20:00 Fri  CLOSED 23:00 Mon – 22:00 Tue
DARWINS*  22:05 Thu – 22:00 Fri  CLOSED 22:00 Mon – 22:00 Tue
Indices      
STOXX50E 23:00 Thu – 21:55 Fri CLOSED 23:00 Mon – 22:00 Tue
GDAXI 07:00 – 21:00  CLOSED  07:00 – 21:00 
SPA35 07:00 – 19:00  CLOSED 07:00 – 19:00 
SPX500 23:00 Thu – 21:55 Fri  CLOSED  23:00 Mon – 22:00 Tue
WS30 23:00 Thu – 21:55 Fri  CLOSED  23:00 Mon – 22:00 Tue
NDX 23:00 Thu – 21:55 Fri  CLOSED  23:00 Mon – 22:00 Tue
J225  23:00 Thu – 21:55 Fri CLOSED 23:00 Mon – 22:00 Tue
AUS200 23:00 Thu – 05:30 Fri CLOSED 23:00 Mon – 22:00 Tue
FCHI40  23:00 Thu – 21:55 Fri CLOSED 23:00 Mon – 22:00 Tue
UK100 23:00 Thu – 12:30 Fri  CLOSED  23:00 Mon – 22:00 Tue

As always, if you have any queries, please feel free to contact us at info@darwinex.com.

The Darwinex Team wishes you a Merry Xmas and a Happy New Year!