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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

Trading Schedule for the US Independence Day on 3rd July 2020

30 June 2020

Please note the amended Darwinex trading hours for the upcoming US Independence Day on 3 July 2020.

Please note the amended Darwinex trading hours for the upcoming US Independence Day on 3 July 2020. All times are in UK (BST) time.

FX Friday 3rd July
All FX Instruments 22:04:01 Thu – 21:55:00 Fri
DARWINs 22:05:00 Thu – 21:55:00 Fri
Commodities Friday 3rd July
Gold *23:01:00 Thu – 17:44 Fri 
Silver *23:00:01 Thu – 17:59:50 Fri 
US Crude *23:00:01 Thu – 17:44 Fri 
US Natural Gas *23:00:01 Thu – 17:44 Fri 
Indices Friday 3rd July
AUS200 23:00 Thu – 22:00 Fri
STOXX50E 23:00 Thu – 22:00 Fri
FCHI40 23:00 Thu – 22:00 Fri
GDAXI 07:00 – 21:00
J225 *23:00 Thu – 18:00 Fri 
SPA35 07:00 – 19:00
UK100 23:00 Thu – 22:00 Fri
SPX500 *23:00 Thu – 18:00 Fri
NDX *23:00 Thu – 18:00 Fri 
WS30 *23:00 Thu – 18:00 Fri
Stocks Friday 3rd July
All US stocks CLOSED
 
Crypto Friday 3rd July
All Crypto Instruments 22:05 Wed – 22:00 Thu

*Amended trading hours.

The DARWIN Exchange will remain open even if the underlying assets’ market is closed. Learn about standard procedure when you buy/sell a DARWIN whose underlying asset market is closed: What happens if you want to buy/sell a DARWIN which has underlying trades open with different opening/closing times?

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

apalancamiento esma

Move of DarwinIA allocations to new risk DARWINs

26 June 2020

Next Monday  29 June 2020 13:00 we will move DarwinIA allocations from the DARWINs of VaR 10% to those of VaR 6.5%.

Next Monday  29 June 2020 13:00 we will move DarwinIA allocations from the DARWINs of VaR 10% to those of VaR 6.5%.

For this move, it’s necessary to take into account the PnL of the allocation. That is, if a DARWIN of VaR 10% had an allocation of 20,000 and PnL of 1,000, what it will have after the migration to VaR 6.5% will be

(20000 + 1000) * 10/6.5

If it were a loss instead of a gain, it would be subtracted.

On July 1st the new DarwinIA prizes will be allocated to the 6.5% VaR DARWINs.

Upcoming Holiday in Australia

4 June 2020

Please be aware that there is a public holiday in Australia on 8 June. Please kindly note that during this time spreads may be wider and liquidity may be thinner. Bank holidays may also give rise to changes to the applicable swap rates. Here are the amended Darwinex trading hours for this day. All times are […]

Please be aware that there is a public holiday in Australia on 8 June. Please kindly note that during this time spreads may be wider and liquidity may be thinner. Bank holidays may also give rise to changes to the applicable swap rates.

Here are the amended Darwinex trading hours for this day. All times are in UK (BST) time.

Indices  Monday 8th June 2020
AUS200 08:10 – 22:00

 

The rest of the assets will trade according to their usual trading time.

 

apalancamiento esma

Platform in Maintenance Mode on May 30-31

29 May 2020

For the rolling out of the changes announced earlier this week, the entire Darwinex platform will be switched to maintenance mode including darwinex.com, mobile apps, FTP service and DARWIN API.

For the rolling out of the changes announced earlier this week, the entire Darwinex platform will be switched to maintenance mode including darwinex.com, mobile apps, FTP service and DARWIN API.

If everything goes as planned, the new DARWINs will be born by the end of the weekend!

Upcoming Holiday In New Zealand Resulting In The Possibility Of Wider Spread

27 May 2020

Please be aware that there is a public holiday in New Zealand on Monday, June 1st during which spreads may be wider and liquidity may be thinner. For any questions, reach out to info@darwinex.com.

Please be aware that there is a public holiday in New Zealand on Monday, June 1st during which spreads may be wider and liquidity may be thinner. For any questions, reach out to info@darwinex.com.

apalancamiento esma

Upcoming closure of demo investments in DARWINs not present in any live portfolio

Starting today we will gradually close demo investments in those old risk DARWINs that aren’t present in any live portfolio.

Related to the pivot we announced earlier this week, starting today we will gradually close demo investments in old risk DARWINs that aren’t present in any live portfolio. Throughout the coming weeks we will close all demo investments in these DARWINs. Closed investments in old DARWINs won’t be automatically replaced with investments in the new DARWIN. You will need to buy the new version to continue demo investing in the DARWIN again.

To open the investment in the new DARWIN with the same risk/return level you had with the old DARWINs, multiply the old investment amount by 1.54.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. -- % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.