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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    • Monies deposited in / withdrawn by yourself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

DAX Trading Hours Soon to be Extended

9 July 2019

The CFD of the DAX (GDAXI) start trading with an extended schedule as of Monday July 22nd, 2019.

The CFD of the DAX (GDAXI) will soon – probably as of Monday July 22nd – start trading with an extended schedule.

The current schedule is as follows:

  • 07:00 – 21:00 (London) Mon-Thu
  • 07:00 – 20:55 (London) Fri

The extended schedule will be as follows:

  • 01:30 – 21:00 (London) Mon-Thu
  • 01:30 – 20:55 (London) Fri

We’ll update this post with the final implementation date of the extended schedule as soon as possible.

Update on July 18th: the DAX will start trading according to the new schedule on Monday July 22nd.

Note that during the night, GDAXI usually has a wider spread and a lower liquidity than during the day.

Please get in touch at info@darwinex.com for any questions you may have.

apalancamiento esma

The FCA Makes ESMA’s CFD Restrictions Permanent

4 July 2019

The new measure doesn’t affect us more than the ESMA intervention already did. And it affected us in a positive way, contributing to the improvement of our clients’ performance.

The UK’s Financial Conduct Authority (FCA) made the European Authority’s (ESMA) CFD restrictions permanent this week.

Some reactions to this we saw in user forums implied this was a “ban” of Contracts for Differentes (CFDs). Some even said it was “the end of Darwinex”.

We’d like to clarify that the FCA’s measure makes the restrictions we already applied last year permanent. But nothing else changes. It’s only that this time it’s the national regulator that said this while last year it was the ESMA.

The new measure doesn’t affect us more than the ESMA intervention already did. And it affected us in a positive way, contributing to the improvement of our clients’ performance.

Trading Schedule for the US Independence Day on 3rd and 4th July 2019

27 June 2019

Please note the amended Darwinex trading hours (in red) for the upcoming US Independence Day on 3 & 4 July 2019. All times are in UK (BST) time.

Please note the amended Darwinex trading hours (in red) for the upcoming US Independence Day on 3 & 4 July 2019. All times are in UK (BST) time.

 

FX Wednesday 3rd July Thursday 4th July
All FX Instruments 22:05 Tue – 22:00 Wed 22:05 Wed – 22:00 Thu
DARWINs 22:05 Tue – 21:59 Wed 22:05 Tue – 21:59 Wed
Commodities
Gold 23:01 Tue – 21:59 Wed *23:01 Wed – 18:00 Thu 
Silver 23:00 Tue – 22:00 Wed *23:00 Wed – 18:00 Thu 
Platinum 23:00 Tue – 22:00 Wed *23:00 Wed – 18:00 Thu 
Palladium 23:00 Tue – 22:00 Wed *23:00 Wed – 18:00 Thu 
US Crude 23:00 Tue – 22:00 Wed *23:00 Wed – 17:45 Thu 
US Natural Gas 23:00 Tue – 22:00 Wed *23:00 Wed – 17:45 Thu 
Indices
AUS200 23:00 Tue – 22:00 Wed 23:00 Wed – 22:00 Thu
STOXX50E 23:00 Tue – 22:00 Wed 23:00 Wed – 22:00 Thu
FCHI40 23:00 Tue – 22:00 Wed 23:00 Wed – 22:00 Thu
GDAXI 07:00 – 21:00 07:00 – 21:00
J225 *23:00 Tue – 18:15 Wed *23:00 Wed – 18:00 Thu 
SPA35 07:00 – 19:00 07:00 – 19:00
UK100 23:00 Tue – 22:00 Wed 23:00 Wed – 22:00 Thu
SPX500 *23:00 Tue – 18:15 Wed *23:00 Wed – 18:00 Thu
NDX *23:00 Tue – 18:15 Wed *23:00 Wed – 18:00 Thu 
WS30 *23:00 Tue – 18:15 Wed *23:00 Wed – 18:00 Thu
US stocks 14:31 – 20:59 CLOSED
 
Crypto
All Crypto Instruments 22:05 Tue – 22:00 Wed 22:05 Wed – 22:00 Thu

 

 

The DARWIN Exchange will remain open even if the underlying assets’ market is closed. Should you want to know the standard procedure when you buy/sell a DARWIN whose underlying asset market is closed, we recommend you to read the following Help Center article: What happens if you want to buy/sell a DARWIN which has underlying trades open with different opening/closing times?

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

Australia Public Holiday on 10th June 2019

5 June 2019

Please note the amended Darwinex trading hours for the upcoming Bank Holiday in Australia on 10th June 2019 (all times are in UK time).

Please note the amended Darwinex trading hours for the upcoming bank holiday in Australia on 10th June 2019. All times are in UK (BST) time.

Indices  Monday 10th June 2019
AUS200 08:10 – 22:00

 

The rest of the assets will trade according to their usual trading time.

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

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Upcoming holiday in New Zealand resulting in the possibility of wider spreads and thinner liquidity

30 May 2019

Please be aware that there is a bank holiday in New Zealand on Monday June 3rd. Therefore, during this time, spreads may be wider and liquidity may be thinner for all NZD-related assets. For any questions, we’re one email away, at info@darwinex.com.

Please be aware that there is a bank holiday in New Zealand on Monday June 3rd.

Therefore, during this time, spreads may be wider and liquidity may be thinner for all NZD-related assets.

For any questions, we’re one email away, at info@darwinex.com.

US Memorial Day & UK Spring Bank Holiday on 27th May 2019

14 May 2019

Please note the amended Darwinex trading hours for the upcoming US Memorial Day & UK Spring Bank Holiday on Monday 27th May 2019. All times are in UK (BST) time. Important: if you open / close an investment in a DARWIN that has an open trade in an asset with the market closed (see amended trading […]

Please note the amended Darwinex trading hours for the upcoming US Memorial Day & UK Spring Bank Holiday on Monday 27th May 2019. All times are in UK (BST) time.

Important: if you open / close an investment in a DARWIN that has an open trade in an asset with the market closed (see amended trading hours in red below), the transaction will not be carried out immediately. The operation will show up in your investor portfolio once it has been executed by our system when the index/commodity resumes trading on Monday night.

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

Commodities   Monday 27th May 2019
Gold 23:01 Sun – 18:00 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
US Natural Gas 23:00 Sun – 17:45 Mon
Indices
UK100 CLOSED
J225 23:00 Sun – 18:15 Mon
SPX500 23:00 Sun – 18:15 Mon
NDX 23:00 Sun – 18:15 Mon
WS30 23:00 Sun – 18:15 Mon
US Stocks
All US stocks CLOSED

The rest of the assets will trade according to their usual trading time.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.