Posts

Benefits of Portfolio Diversification

Importance of Trading Consistency using Investible Attributes with Darwinex

In the previous post on trading consistency, the focus was on the consistency of returns. A strategy with the same fixed take-profit and stop-loss levels will generally have a high returns consistency.

However, not all strategies follow these fixed take-profit and stop-loss levels. Seasonality strategies, for instance, usually have time-based entries and exits. The entries and exits will be at the same time of day, or week, or month. Similarly, the exit criteria will usually be at a specified time.

A strategy that opens a trade at London Open and closes the trade at London Close is an excellent example of a seasonality trade. Now, this strategy trades in a consistent manner, but the returns will have a higher variation than a strategy that uses a fixed TP/SL.

Does this mean that a lower returns consistency means a lower trading consistency?

Not at all; it just means another way of measuring it is needed. For this reason, Darwinex created the Duration consistency (Dc) Investible Attribute. The (Dc) IA measures the consistency of when a trade is closed based on using time as a factor, not the returns.

With this in mind, it’s reasonable to assume that a DARWIN with a high (Dc) score may not have a high (R+/R-) score. As an investor, you can use this knowledge to provide clues on how the underlying strategy may operate.

Of course, the underlying system may have multiple components, in which case it may have high or low scores in both Investible Attributes. The key take-home point here is that you have tools at your disposal to help you make informed choices.

As traders and investors, that’s all you can do. Make the best decisions you can with a suitable amount of information and data.

If you need further insight on Darwinexs’ Investible Attributes, don’t hesitate to reach out to us at info@darwinex.com and we’ll be happy to help.

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:
https://www.darwinex.com/legal/risk-disclaimer


Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.

PROs and CONs of Commercial Expert Advisors Trading Strategy Analysis Trading Strategy Analysis

Trading Strategy Risk Management to Attract Investment Capital

Experienced traders know how important Risk management is. In fact, you’ll understand that it is likely the single most crucial aspect of trading. For this reason, most of Darwinexs’ Investible Attributes focus on some element of risk. 

Darwinexs’ Investible Attributes attempt to identify weak points in a trading strategy and give Investors and Traders alike metrics to allow them to make informed decisions. It is impossible to make sensible investment decisions without having a depth of informative material available. 

The importance of risk in trading and investment is also why Darwinex created the DARWIN Risk Engine. The Risk Engine actively monitors the underlying strategy and adjusts the risk on the corresponding DARWIN where necessary. 

In doing this, Darwinex is able to Target a Max monthly VAR (95%) of 6.5%. This process is vital for investors. It reassures them that the DARWIN they’re investing in has appropriate measures to control risk outside of the Traders own risk management processes. 

With this in mind, the Risk Engines seeks to analyse the trading account and monitor the deviation of an expected outcome. If it feels the trader is acting outside of what is expected, which increases the risk in a manner it feels is unacceptable, it will adjust the risk on the DARWIN accordingly. 

This action allows all DARWINs to be standardised meaning you can accurately compare them to one another. This comparison would not be possible ordinarily when comparing two very different strategies, hence why the Investible Attributes are so valuable. 

Risk Management using The Risk Adjustment (Ra) IA 

The (Ra) Investible Attribute measures the level of involvement the risk engine must take to achieve its target of a max 6.5% Var (95%). An underlying strategy with an unstable and unpredictable risk profile will require more intervention by the risk engine, thus providing the DARWIN with a low (Ra) score. 

Another important note regarding the risk engine is that it will intervene if the D-Leverage exceeds a set limit. This limit is ultimately for the protection of the investors capital. For those not familiar with D-Leverage, you can find out more here. A future post will cover D-Leverage in greater detail.  

A DARWIN is a financial Derivative. 

Darwinex has implemented numerous risk mitigation processes to protect investors money. But a DARWIN is still a financial derivative, and as such, you should take care when investing in derivatives. 

A derivative is a financial contract ‘derived’ from an underlying asset so that the price movements of the derivative and the underlying asset are highly correlated over time. 

The important detail to note here is that the above risk management processes DO NOT mitigate the risk of the underlying trading account, and as such, your capital is at risk. Remember to take care when choosing to invest in ANY derivative product, including DARWINs. 

If you have any questions or queries regarding investing in DARWINs, please do not hesitate to contact us. 

Darwinex provides an unmatched level of insight to its Traders and Investors.

For Traders

Having this level of analysis available without having to conduct rigorous tests is invaluable. It can save time and allow the trader to focus on the most pressing issues affecting their trading account. 

It also provides insight into metrics investors may use to base investing decisions on. This insight can allow the trader to adjust some aspects of their strategy to increase risk management and stability factors to make a DARWIN safer and thus more appealing to attract third-party capital. 

For Investors

Having an extra layer of risk mitigation can reassure investors that every step possible to protect their investments is taken. They will still have exposure to various market risks, but these are controlled as is reasonably practical. 

Another perk for investors is that Darwinex has third-party deposit protection on top of the FSCSs’ protection. This extra insurance means that your deposits are protected up to £1 million.  

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:
https://www.darwinex.com/legal/risk-disclaimer


Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only. They are not to be construed as financial and/or investment advice.