Darwinia winners

New in DarwinIA: Allocation Linked to Trader’s Equity

Since we introduced DarwinIA back in 2015, it has become Darwinex’s most popular URL – especially so as the month closes to settle the final capital allocations.

Like everything Darwinex, DarwinIA has evolved over the years. What started out as a cash prize became today’s 6 month capital allocation at 10% VaR. Allocations have grown to EUR 24 million at the time of writing. Since early in 2018, community data based Darwinian Dividends add a cash pay-out to the allocation.

All this goes to say that DarwinIA has become a cornerstone to the DARWIN asset class over time: it’s our flagship trader acquisition tool. This post explains a new change, to be introduced from November 2018.

The next 700 odd words:

  1. Review the value contribution to traders.
  2. Explain the resulting incentive alignment.
  3. Explain the changes to DarwinIA.
  4. Review the risks inherent to the change.

We’d very much value your input on any of the above, don’t hesitate to engage with us in the comments section or via Twitter!


The Trader USP

The DARWIN Exchange is a Hedge Fund as a Service, bolted onto a competitive brokerage offering.

The component pieces include:

  1. Prime Brokerage in liquid assets
  2. Trading Platforms & Data
  3. Track record certification
  4. Our proprietary investability score / D-Score and 12 component attributes
  5. Independent risk management service
  6. Entry into the DarwinIA Trading Challenge
  7. Regulatory cover to monetize investor success – from investors you bring, and it’s you who introduces investors, or
  8. Capital Intro – currently EUR 50MM AuM track DARWINs, @ 10% VaR
  9. Back-office
  10. Customer support for all investors

Leave aside the fact that a DARWIN is not a Hedge Fund (it remains “just” a managed account for now). The core point is that traders enjoy ALL the above from their first EUR/GBP/USD commission.

This is what makes Darwinex potentially disrupting – virtually anyone gets a shot at managing investor monies, with virtually no risk.


Incentive Alignment

All of which is good – perhaps too good?

Aristotle was first to describe too much virtue as a vice. Isn’t a Hedge Fund as a Service from the first commission letting traders get away with too little skin in the game? What if barely committing any personal equity made aspiring managers and compromised the credibility of the asset class?

This may be the case… and it’s one of the reasons why we created DarwinIA in the first place. We wanted to walk the talk, proving to traders that we believed in them, and to investors that we trusted our diagnostic and risk management algorithms.

That’s when we hit on DarwinIA to:

  • Give visibility to the most investable strategies at any given time.
  • Seed traders with capital and thus, credibility.
  • Offer traders longer term capital – the 6 month capital commitment seeks to insure traders against short term drawdowns / redemption threats.

The key in all the above was allocating with rigour:

  • Darwinex manages VaR for all DARWINs to a 10% risk target – everyone competes in a level playing field for risk – and thus return.
  • All entrants risk live funds – they have skin in their own game.
  • Long term investability (D-Score) drives allocations more than monthly profitability.
  • The Experience attribute in the D-Score penalises short history strategies from meaningful allocations.

Credibility of the DARWIN  asset class

Which brings us to the point of the change to DarwinIA.

A manager value proposition so disruptive to traditional asset management begs for scepticism. The below questions are but the most polite questions many investors pose:

  • How credible is a manager / strategy with infinite investor leverage with e.g. EUR 100 of equity in their trading account?
  • What prevents a data scientist from listing e.g. 20 seemingly plausible algorithms, listed with e.g. EUR 100 equity a piece and getting “free” investor leverage!?
  • What sort of manager/investor alignment do you get with such asymmetric risk taking?

… and to be honest, they have a point.

DarwinIA stands out from run of the mill trading challenges (EUR 1000 for best demo CFD account this month!) … but is that enough to position the DARWIN asset class where it belongs?


Changes to DarwinIA

Thank you for reading this far! Hopefully this lengthy introduction provides context and perspective for the next evolution to the Darwinian concept.

From November 5th, 2018, the allocation will depend on monthly minimum trader equity, whereby each of the 48 allocation slots carries:

  • A maximum allocation, where the actual allocation will be a function of the underlying strategy’s minimum equity (the lowest equity realized throughout the month of the competition), and
  • A multiple to be assigned to each of the 48 slots, whereby the top allocation will be limited to 30x minimum equity and the 48th will be limited to 15x.

… All of which sounds more complex than it is.

Going forward, the winner of the top slot for EUR 300.000 maximum allocation, will be assigned:

  • EUR 300.000 allocation with monthly minimum equity of EUR 15.000.
  • EUR 150.000 for a minimum equity of EUR 5.000 (limited by the x30 multiplicator).

The contest format (6 month commitment, 20% success fee) remains, as does the ranking algorithm. Changes apply from November 5th.


Risks

The long term goal is to seed those really committed to long term success in asset management – because they contribute the most to building the DARWIN asset class.

We’re conscious of the fact that some might interpret this measure as contrary to the meritocratic vision. We’re open to alternative suggestions that further the ultimate goal, with less by-products.

But we’re also relentlessly committed to the ultimate goal and reserve the right to modify the cap level (30x) or even introduce other restrictions.

Thoughts?

30 replies
  1. Uxxar
    Uxxar says:

    First, Lol, 30*15000 = 450000 and not 300000$
    Next, Thus the first which will have only 1250 euros with low, will have an allowance of 30*21250 is 37500$ (instead of the 300k$ before).
    And that which finishes LAST with 2500 $ will thus receive 37500, as much as the first.
    It has an inequality that you to dig.
    The QUANTITATIVE (the capital) compared to QUALITATIVE (efficiency). Cheer for this reflection, I do not tell you thank you but good luck with this upheavals.
    Darwinex stil be a good broker.

    Reply
    • Uxxar
      Uxxar says:

      Next, Equity discrimination can NOT show if a trader with 10k$ equity trade 0.01 lot, also as a trader with 1k$ and 0.1 lot.
      DarwiniIA is a fantastic pub. How many trader with 100$ won regular prices AND OFTEN how many have you paied ?

      Reply
  2. david west
    david west says:

    So if I understand this correctly? If I have 1000 Euros in my trading account and I finish top of Darwinia I will be allocated 30,000 Euros for 6 months?

    Reply
    • René - :)
      René - :) says:

      It’s for listed DARWINs only, not for each and every trading account as per sé. This is an important difference there to be noticed.

      So, if you have got a DARWIN listed that is investible and you are participating in the monthly DARWINIA competition, then you’ll get a 30’000 EUR allocation for 6 month IF you have been ranked 1st in that month AND the lowest equity you had in that month was 1’000 EUR (factor 30).

      >> No DARWIN listed yet = no participation in the contest = no chance to get an allocation. – So: First, get your strategy listed as a DARWIN, then win a slot, and then get an allocation. Just having a trading account is not enough to participate in the DARWINIA contest.

      Plus, if you have a 2’000 EUR low-equity point in the same DARWINIA contest period (month), assuming you have your DARWIN listed and investible and you thus participate in the contest, and you THEN finish as 48th in the ranking (last winning slot), then you’ll get the same 30’000 EUR as the first ranked DARWIN with the smaller equity because of the factor difference (factor 15 for last winning slot ranked 48th in the contest needs double the equity at the lowest point in a given contest month to get the same allocation as 1st rank with half of that equity at the lowest point in that month).

      Cheers!

      Reply
    • Utopian
      Utopian says:

      per my understanding you need 2000€ of equity to be able to get 30.000 € allocated to you for 6 month.
      15 x 2.000 = 30.000

      Reply
    • Utopian
      Utopian says:

      it is impossible to say today how much will be allocated. It depends how much equity the trader has in the account. If all 48 winners have more than 15k in the account, the all 4 mill. will be allocated. If the winners only have 7.5k in average in the account, then theoretically 2 millions will be allocated.

      Reply
  3. René - :)
    René - :) says:

    Question: What if I have a DARWIN participating in the DARWINIA competition, and I have a 30’000 EUR minimum equity in that month and I rank 1st? – Will I then get (30’000 EUR * factor 30) = 900’000 EUR allocation for six month? – So, is the factor the only limit there, or is the allocation amount also limited to i.e. 300’000 EUR as it was before with the old rules for the first place in the monthly DARWINIA ranking? – That is sort of unclear to me. – Thank you for your answers in advance! – Cheers!

    Reply
    • Giovani
      Giovani says:

      Is it not better to have some minimum capital allocation like before, and a variable one with 30X and 15X in proportion of minimum equity?

      Minimum equity should be put more money where the trader money is. Meritocracy and a proportional share in function of minimum equity, sound good to me.

      Reply
    • The Market Owl
      The Market Owl says:

      Thanks René! Previous “allocations” have become current “maximum allocations”. That’s why the winner in the first positions gets € 300.000 even with € 15.000 minimum equity.

      Reply
  4. Muiris
    Muiris says:

    I thought the whole point of the D SCORE was to show a trader had a sound strategy and not reckless. also the management of risk controlled by darwinex.

    This has to be one of the dumbest moves i have seen yet. Completely cut the legs under so many traders. The whole selling point of darwinex.

    How can I grow my “peanuts” now??

    Darwinia is probably the only selling point of Darwinex

    Reply
    • Greg @OutsidetheBoxHK -- BUX
      Greg @OutsidetheBoxHK -- BUX says:

      @Muiris 29 October 2018
      “I thought the whole point of the D SCORE was to show a trader had a sound strategy and not reckless. also the management of risk controlled by darwinex. This has to be one of the dumbest moves i have seen yet. Completely cut the legs under so many traders. The whole selling point of darwinex. How can I grow my “peanuts” now?? Darwinia is probably the only selling point of Darwinex”

      I agree with this mentality completely.
      The D Score shows which systems are investable. Full stop. If you want to change the way the algorithmic scoring computes the D Score, then this is the way to improve, while not unnecessarily penalising those with less capital.

      Reply
  5. Reidar1932
    Reidar1932 says:

    Good. I would only hope (but apparently it will not be so) that you will not do this for all the old grants, but only starting with the grants received from December 2018, but it is better to start this from 2019. I think it would be more honest (maybe?).

    And if my opinion may be interesting to someone – the indicated coefficients are too high, 15,000 or even 10,000 is quite a serious amount. Yes, I’m the that guy from a small village, and I suggest all the same to change the coefficients.

    I think – VAR controls the trader in particular enough risk in particular, and control over his equity is an unnecessary point that will only reduce for many possible investments from DarwinIa

    I also really thought that in Darwinex, good traders who do not have large capital can count on competing with richer people, but apparently this dogma is changing. Equal conditions for all will be no more.
    The rich will get richer faster than the poor, if the poor can even make a living, just like in life.

    Thank you with respect.

    Reply
  6. Greg @OutsidetheBoxHK
    Greg @OutsidetheBoxHK says:

    1) I expect this change, if enacted, will begin with the Darwinia Challenge month November? December?

    2) I have to say that as I read thru the other comments, I agree with those who believe this rewards those with bigger accounts, even when the trading skill required to win a slot in the top 48 is the same regardless of how much equity a DARWIN trader has in their account.

    3) The amount in a trader’s account does slightly affect how much risk a trader is willing to take, but this should be partially factored into Darwinex’s risk adjusted Asset Firm Manager software that ensures investors stay close to 10% VaR at all times.

    4) I will now have to re-assess how hard I work to gain a top 48 spot given this new rule. This month I worked very hard to qualify with my DARWIN BUX, but now these multiples of 30x and 15x are confusing to me.

    5) What amount of equity is required for a trader in #1 slot and #48 slot to receive the previous stated allocations?

    Reply
  7. Greg @OutsidetheBoxHK -- BUX
    Greg @OutsidetheBoxHK -- BUX says:

    The fact that some DARWIN’s have less capital could be factored into the algorithmic D score or as a 4th category factoring into the monthly Rating along with D Score, Monthly Return, and Regularity.

    You also have to look at it from the 1000’s of DARWIN traders perspective too.
    This immediately puts asset management back into the sole control of those who traditionally have had sole control: the wealthy and privileged.
    There are some very good DARWIN’s who are eligible for the special filter categories who only have $1000 USD or $1000 EUR. Does this mean they should be penalised for not having significant capital in their trading account?

    That is why I came here.
    To have equal chance to attract investors so that I can become trusted and compensated for my trading skill, being self taught and not having over $20,000 total funds to begin trading with in 2017.

    Reply
  8. Milan
    Milan says:

    I think it is fair to ask traders to put more skin in the game and if trader has good strategy sooner or later will have enough capital than just 1k euros. I like the idea however it could be somewhere between today’s allocation rules and new ones. Lets say having 5k account and winning 1st place would guarantee full amount 300k allocation. Darwinex has been doing great job, so keep up that guys.

    Reply
    • The Market Owl
      The Market Owl says:

      Thanks for the comment and the feedback Milan, it means everything to us! We’re evaluating including into the “minimum equity” the amount invested by the traders into their own DARWINs.

      Reply
  9. Utopian
    Utopian says:

    a few questions regarding the DarwinIA changes:

    what will be the multiplier if I am in the, say the 30th place (60k allocation) at the end of the month? 15x or 30x – or something in between?

    If I’m on the 48th place with 500€ equity, then I will receive only 7500€ allocation , correct?
    To receive the full allocation for the 48th place (30k) I’d need at least 2000€ equity, correct?

    With these changes in place, it looks like not all 4 million € of monthly allocation will be payed out if some Darwinex do make it to the top 48, but do not have the requirements meet for the full pay out. Is this also correct?

    Thanks.

    Reply
    • The Market Owl
      The Market Owl says:

      Hi Utopian, thanks for the questions! We’ve now published all multipliers on the DarwinIA site together with the minimum equity needed to receive the full (maximum) allocation. Just click on the “i” icon under “This month’s allocations”. You’re correct that the maximum allocation (now €4,5MM) will not necesarily get distributed.

      Reply
      • Utopian
        Utopian says:

        @ The Market Owl The multiplier table is very useful to understand the mapping of the equity to allocation amounts. I, as a trader, I’m fine with the new equity requirements. They are in a reachable area for me.

        Reply
        • The Market Owl
          The Market Owl says:

          Thanks for the feedback Utopian. We agree that it’s in the “reachable area” for retail traders. In addition, we’re evaluating including into the “minimum equity” the amount invested by the traders into their own DARWINs.

          Reply
  10. Adrian
    Adrian says:

    Too bad that this rule was put in place without much advance notice so that traders could adjust the account equity. Now, for November the min account equity is locked = less allocation for the winning Darwins with < 2k eur accounts.

    Reply
    • The Market Owl
      The Market Owl says:

      Thanks for the comment Adrian! We published this one week before coming into effect so traders have _some_ time – but agree that it was not enough or all traders who would have liked to adjust for the November edition!

      Reply
  11. Wilko
    Wilko says:

    Great that amount of shin-in-the-game now has become a factor! Darwinex is progressing from strength to strength. Keep up the excellent work!

    Reply

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