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Inside Darwinex – Performance calculation, explained

24 October 2013

Understanding your Performance

Upon joining, many new movement members reach out stating: “hey guys, my performance statistics are different from Service Alfa (insert here your favourite alternative site to Darwinex) – they’re wrong!”

Whilst occasionally stuff DOES go wrong, more often than not differences owe to the fact that returns at Darwinex are calculated differently from most existing service providers.

Other services calculate performance on changes to account balance, which accounts for realised P&L (closed trades), but ignores unrealised P&L until open trades are closed.

Darwinex performance is measured on changes to liquidation value, which accounts for realised P&L (closed trades) as well as unrealised P&L (i.e. open trades).

This is the most common reason why returns “differ”. The rest of this post explains why we do things this way, and what implications this has.

Other services performance calculation – changes in account balance

Most services track changes to balance, i.e. accounting for

  • Starting account balance
  • Plus minus realised P&L
  • Plus minus cash flows
    • Cash paid in / deducted by your broker (swaps, commissions, etc.)
    • Monies deposited in / withdrawn by yourself

Performance over a given reference period is then driven by the % change in the resulting account balance.

Your Darwinex Performance – changes in mark to market

At Darwinex, all strategies’ Trading Journal reflect daily liquidation values, considering:

  • Starting account balance
  • Plus minus realised P&L: i.e. monies made or lost on closed positions
  • Plus minus cash flows as per above
  • Unrealised P&L: i.e. what-if P&L when closing ALL open positions at the end of every day

I.e. at the end of every day, regardless of whether trades are open or closed, we compute the hypothetical P&L for ALL open positions assuming that they were closed at the then going market price. The resulting account “balance” is called liquidation value for that particular day.

Your performance is calculated on changes to this liquidation value (purists would call this Mark-to-Market value) of equity. Which means, on any day where open positions are held overnight, the inputs into your performance calculation are different from the inputs at Service Alfa. Unsurprisingly, the output is also different!

Unrealised P&L – why do we care about it?

Darwinia rates strategies for DARWIN investor appeal (hence Darwinia): our standpoint is that of an investor replicating, with his own monies, all trading decisions in a strategy.

This makes us care about unrealised P&L as much as we care about account balance: let’s work through an example to illustrate why.

Market movements matter

Trader Ace with USD 10,000 balance opens a 5 lot long EUR/USD trade. For the next 3 days, this will be his only open trade.

This is what happens to the EUR/USD over the timeframe.

  • Trade open at 1.30135 on day 0
  • End of Day 0: EUR/USD is at 1.30115. Ace keeps the trade overnight
  • End of Day 1: EUR/USD is at 1.29250. Ace keeps the trade overnight
  • End of Day 2: EUR/USD is at 1.28815. Ace keeps the trade overnight
  • Day 3: trade is closed at 1.30250

Investor A replicates Ace’s trades with his own monies 1:1, i.e. using the same leverage as Ace. A uses Darwinex and service Alfa to monitor his investment.

This is the performance calculation investor A gets at Darwinex and Service Alfa [1]:

Snapshot EUR/USD TradeSlide Service Alfa
Liq. value  Daily Perf. Balance Daily Perf.
Trade open 1.30135 10,000.00$ N/A 10,000.00$ N/A
End of day 0 1.30115 9,900.00$ -1% 10,000.00$ Flat
End of day 1 1.29250 5,575.00$ -43,69% 10,000.00$ Flat
End of day 2 1.28815 3,400.00$ -39.01% 10,000.00$ Flat
Trade close 1.30250 10,575.00$ 211.03%(5.75% compounded over 3 days) 10,575.00$ 5.75%

Let’s get this straight: both methodologies are “correct”.

BUT: Darwinex performance contains more information than Service Alfa’s calculation – the unrealised P&L that drives changes to liquidation value.

This has implications that matter.

Implication 1: Performance “masquerades”

Investors are always keen for brilliant performance. As always in life, there’s two ways about it: the proper way, and a short cut.

The safe one is to develop trading skills, manage risk with discipline, and work 2,000 hours a year to develop and maintain a unique strategy that delivers risk-adjusted returns. But hey, we know that’s hard work …

So why not take the short cut? If performance equals realised P&L and unrealised P&L doesn’t matter, why not “short cut” mind-boggling balance growth as follows?

  • Trade winning? Close it and credit realized P&L
  • Trade losing? Keep “corpses” in the “unrealised P&L” closet
  • Repeat

Of course, too many losing trades will trigger a margin-call (the worse the strategy, the sooner). Meanwhile, high return, low risk growth in balance will have lured plenty of profitable investors using service Alfa…

Implication 2: Risk management

A more fundamental implication is risk measurement. Measuring risk on volatility in balance leads A to these conclusions:

  • Volatility: low – A’s money “only” moves from 100% to 105.75%
  • Drawdown: A “experienced” no drawdown in this trade
  • Rally: A “experienced” a rally of 5.75% of his money on this trade

I.e. A will completely ignore that his monies moved around 40% over the 2 days of the trade, and that at the end of day 2 he was 6,600 USD worse-off.

Of course, Ace could argue that the trade worked out just grand, with a profit of 5.75%. But what if A was leaving for a Himalaya trekking trip and asked Ace to close any open positions at the close of day 2? Boy that would have been ugly!

Summary: why?

Calculating net liquidation values requires us to source & maintain the mark-to-market price database for all the assets you ever traded, and that’s not a small & cheap database to populate, host and maintain.

Further, the way performance is calculated on the BASIC and the DARWINIA statistics is slightly different, as Darwinia is a lot more analytically involved. You will occasionally see a few decimal differences between one and the other, as they are updated with different precision and time frames… but they’re not wrong.

But then again, that’s the only way to create D-Leverage, no DarwinIA, no DARWINs, etc. If it requires us doing things differently from service Alfa – so be it!

 


[1] For simplicity, we’ve ignored swaps & any other overnight charges.

Last News

Darwinex Amended trading Hours for President’s Day (19 February 2018)

13 February 2018

Please note the amended Darwinex trading hours for the upcoming President’s Day in the US on 19 February 2018 (all times are in UK – GMT time).  Instrument Trading Hours  FX 22:05 Sun – 22:00 Mon   DARWINS 22:05 Sun – 22:00 Mon  COMMODITIES   Gold* 23:01 Sun –17:59 Mon Silver* 23:00 Sun –18:00 Mon Platinum* 23:00 Sun –18:00 Mon Palladium* 23:00 Sun –18:00 Mon US Crude* […]

Please note the amended Darwinex trading hours for the upcoming President’s Day in the US on 19 February 2018 (all times are in UK – GMT time).

 Instrument Trading Hours
 FX 22:05 Sun – 22:00 Mon
  DARWINS 22:05 Sun – 22:00 Mon
 COMMODITIES  
Gold* 23:01 Sun –17:59 Mon
Silver* 23:00 Sun –18:00 Mon
Platinum* 23:00 Sun –18:00 Mon
Palladium* 23:00 Sun –18:00 Mon
US Crude* 23:00 Sun –17:45 Mon
Natural Gas* 23:00 Sun –17:45 Mon
 INDICES  
Australia 200 23:00 Sun –22:00 Mon
 Europe 50 23:00 Sun –22:00 Mon
France 40 23:00 Sun –22:00 Mon
Germany 30 07:00 – 21:00
Spain 35 07:00 – 19:00
Japan 225* 23:00 Sun –18:00 Mon
 UK 100 23:00 Sun –22:00 Mon
 US SPX 500* 23:00 Sun –18:00 Mon
 US Tech 100* 23:00 Sun –18:00 Mon
Wall Street 30* 23:00 Sun –18:00 Mon
*Amended Darwinex trading hours.

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

Our Latest Improvement In…The Importance Of A Good First Impression

In Darwinex, a first impression is the event when one investor first encounters a DARWIN and forms an opinion about it. First impressions are based on a wide range of characteristics: D-Score, Investing Attributes, AuM, return, drawdown, trader’s equity, etc. But, what about the strategy description? Write a delightful description to connect with your investors […]

In Darwinex, a first impression is the event when one investor first encounters a DARWIN and forms an opinion about it. First impressions are based on a wide range of characteristics: D-Score, Investing Attributes, AuM, return, drawdown, trader’s equity, etc. But, what about the strategy description?

Write a delightful description to connect with your investors at a deeper level

We know that a good description could significantly influence whether an investor allocates capital in your DARWIN or not since, at the end of the day, the relationship between a DARWIN provider and its investors is based on trust.

We are also aware that some of you have a blog or website where investors, or other traders, can know more about you and your strategy.

Enhanced tool to describe your strategy

That is the reason why we have decided to enhance our description tool so you can incorporate bold, italics and a link to your site in the description of your DARWIN/strategy, in your main profile and in all your “Darwinian filters”.

Here a brief example of how to do it:

Bold => **bold** => bold

Italics => _italics_ => italics

Link to your website => Go to [my website](https://www.darwinex.com/) => Go to my website

DARWIN VTJ paused for new investment

7 February 2018

Due to the divergence caused by the sheer increase in the volume of investors in the DARWIN VTJ- more than € 2MM under management! -, its DARWIN provider has requested us to close it temporarily. This means that the DARWIN will remain closed for new investments and current investors in VTJ will only be able […]

Due to the divergence caused by the sheer increase in the volume of investors in the DARWIN VTJ- more than € 2MM under management! -, its DARWIN provider has requested us to close it temporarily.

This means that the DARWIN will remain closed for new investments and current investors in VTJ will only be able to sell it.

For your information, we are currently working on a “Capacity Management” tool which will allow DARWIN providers to pause their DARWIN if they meet the following criteria:

  • 1-The max AuM cap established by the DARWIN provider is surpassed. The minimum will be determined by Darwinex.
  • 2-The divergence % in the DARWIN goes beyond the threshold established by the DARWIN provider. At this point, the DARWIN will be automatically paused. Irrespective of the min divergence % required by the DARWIN provider, Darwinex will automatically pause the DARWIN if it goes beyong  1%-1.5% (we’re still defining the optimal %)

This tool will allow Investors to:

  • 1-Know the parameters chosen by the DARWIN provider in advance.
  • 2-Activate a notification mechanism that will alert them when a trader changes any of the parameters defined beforehand or the DARWIN is paused/reopened again.

In the absence of such tool, the procedure hereinafter will be similar to the one applied for VTJ: the DARWIN provider notifies Darwinex of its intention to pause its DARWIN and we will comply with its will, with the limitations above-mentioned.

IMPORTANT: from now on, in case a DARWIN provider decides to pause it before the launch of the “Capacity Manegement” tool , Darwinex will not send any kind of notification to its clients.

Should you want to share your views on this topic, you are more than welcome to participate in this Community thread.

And the DarwinIA winners are… (January 2018)

1 February 2018

The January 2018 edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period. Place DARWIN Notional allocation 1st VQB € 300,000.00 2nd RDD € 250,000.00 3rd GTD € 210,000.00 4th WFJ € 170,000.00 5th CBY € 150,000.00 […]

The January 2018 edition of our DarwinIA trading challenge came to its end. Below you can find the 48 winners of our € 4,000,000 notional allocation for a 6 month period.

Place DARWIN Notional allocation
1st VQB € 300,000.00
2nd RDD € 250,000.00
3rd GTD € 210,000.00
4th WFJ € 170,000.00
5th CBY € 150,000.00
6th KVL € 140,000.00
7th ONE € 130,000.00
8th HTX € 120,000.00
9th UYZ € 110,000.00
10th XYF € 110,000.00
11th VTS € 110,000.00
12th ZGE € 100,000.00
13th LDZ € 100,000.00
14th RZX € 100,000.00
15th XIS € 90,000.00
16th ERQ € 90,000.00
17th ZZI € 90,000.00
18th LOM € 80,000.00
19th MER € 80,000.00
20th QDJ € 80,000.00
21st FTA € 70,000.00
22nd PFH € 70,000.00
23rd PMZ € 70,000.00
24th STP € 70,000.00
25th ENI € 60,000.00
26th NTI € 60,000.00
27th LFS € 60,000.00
28th LLZ € 60,000.00
29th ADZ € 60,000.00
30th GED € 60,000.00
31st FEG € 50,000.00
32nd YZF € 50,000.00
33rd ZTY € 50,000.00
34th ILM € 50,000.00
35th XSN € 50,000.00
36th QNR € 50,000.00
37th SPV € 50,000.00
38th STT € 40,000.00
39th NDQ € 40,000.00
40th WWB € 40,000.00
41st UEI € 40,000.00
42nd JBR € 40,000.00
43rd ZOX € 40,000.00
44th CEM € 40,000.00
45th HGD € 30,000.00
46th LZL € 30,000.00
47th DZL € 30,000.00
48th VBU € 30,000.00

 

Have questions about DarwinIA trading challenge ? At info@darwinex.com we’ll be happy to assist you!

Darwinex Amended trading Hours for Australia Day (26 January 2018)

22 January 2018

Please note the amended Darwinex trading hours for the upcoming Australia Day on 26 January 2018 (all times are in UK – GMT time).  Instrument Trading Hours  FX 22:01 Thu –21:55 Fri   DARWINS 22:01 Thu –21:55 Fri  COMMODITIES   Gold 23:01 Thu –21:55 Fri Silver 23:00 Thu –21:55 Fri Platinum 23:00 Thu –21:55 Fri Palladium 23:00 Thu –21:55 Fri US Crude 23:00 Thu –21:55 Fri Natural Gas 23:00 Thu –21:55 Fri  INDICES […]

Please note the amended Darwinex trading hours for the upcoming Australia Day on 26 January 2018 (all times are in UK – GMT time).

 Instrument Trading Hours
 FX 22:01 Thu –21:55 Fri
  DARWINS 22:01 Thu –21:55 Fri
 COMMODITIES  
Gold 23:01 Thu –21:55 Fri
Silver 23:00 Thu –21:55 Fri
Platinum 23:00 Thu –21:55 Fri
Palladium 23:00 Thu –21:55 Fri
US Crude 23:00 Thu –21:55 Fri
Natural Gas 23:00 Thu –21:55 Fri
 INDICES  
Australia 200* *06:10  – 21:55 
 Europe 50 23:00 Thu – 21:55 Fri
France 40 23:00 Thu – 21:55 Fri
Germany 30 07:00 – 21:00
Spain 35 07:00 – 19:00
Japan 225 23:00 Thu21:55 Fri
 UK 100 23:00 Thu21:55 Fri
 US SPX 500 23:00 Thu21:55 Fri
 US Tech 100 23:00 Thu21:55 Fri
Wall Street 30 23:00 Thu21:55 Fri
*Amended Darwinex trading hours.

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

Our Latest Improvement In … Chart Re-alignment!

19 January 2018

You already know that our incentives are 100% aligned with those of our clients –zero conflict of interest between Broker, Traders and Investors-, and this is something we feel VERY proud of in Darwinex. However, this was true to some extent as some of our tools had risen up in rebellion. In particular, the profile […]

You already know that our incentives are 100% aligned with those of our clients –zero conflict of interest between Broker, Traders and Investors-, and this is something we feel VERY proud of in Darwinex.

However, this was true to some extent as some of our tools had risen up in rebellion.

In particular, the profile of the DARWINs, displayed in the following sections, were slightly misaligned:

  1. Explore
  2. All DARWINs
  3. Any predefined filter
  4. Your Favorites
  5. Public User Profile
  6. A custom filter

Fortunately, the rebellion has not lasted long and we have been able to re-establish order…and alignment everywhere.

Trade safe!