How DARWIN risk is managed (8)

4 July 2018
The Market Owl

In this episode, podcast host Nick “The Moose” Batsford and Juan Colón talk about how Darwinex manages DARWIN risk. In the previous episode we covered why DARWIN risk is managed independently from the trader.


Fundamentals of DARWIN investing

Register for this webinar if you want to master the basics of DARWIN investing.


How does Darwinex manage DARWIN risk?

We start explaining why VaR (Value at Risk) is a proper measure of risk. With 10% monthly VaR at 95% confidence, investors can go to a desert island without Internet next month, knowing that with 95% probability they’ll do better than -10% and with 5% probability they’ll do worse than -10%.

To explain VaR and expand on why it’s a proper measure of risk, we’re going to build up conceptually how we calculate it and compare it all along to partial measures of risk which is what most people use today.

We continue mentioning that DARWIN investors can set take-profits / stop losses on the DARWIN price if they want to bound their outcomes even further (at the expense of making them more likely – more on that later).

So, whilst DARWIN investors are in the desert island:

  • The trader will have no incentive to change his risk
  • He gets no cut in commissions
  • He only earns on success
  • He’ll ruin his score by changing his game
  • Darwinex will control DARWIN leverage so that as DARWIN investors know those are the odds
  • Apples to apples consistent with that DARWIN’s past
  • Apples to apples comparable to past behaviour by every DARWIN

Prerequisite for an investable asset: risk is known, because it’s independently verified and managed

Otherwise, it’s all a noisy haystack that smart investors won’t approach (they know better than gambling investor peanuts)

And the way is to build up our stack from:

  • A trade -> trade level risk
  • A position -> unit measure or risk
  • A strategy -> proper measure of risk

Listen to the episode


Fundamentals of DARWIN investing

Register for this webinar if you want to master the basics of DARWIN investing.