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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:

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.

darwin risk

How DARWIN risk is managed (8)

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.