We are pleased to announce a very important and positive change for all DARWIN providers in Darwinex Zero and Darwinex.
Recently, we held a webinar for Darwinex Zero clients where many customers expressed their unhappiness with the treatment of the High Watermark (HWM) for DarwinIA allocations.
Having subsequently analyzed this feedback, we concluded that the way we were previously rewarding Darwinex Zero clients through DarwinIA was creating an incentive contrary to our main objective when developing D-Zero, which is for traders to win and generate trust through the creation of a long-term track record.
Currently, the compensation model is based on paying 15% of the profits obtained from DarwinIA allocations with a quarterly High Watermark (HWM). Every quarter, starting from the date of the first investment, the total profits earned are evaluated based on all investments made up to that point. If the total profit exceeds the previous quarters’ profit, Darwinex pays 15% on the difference.
In this graphic, we can visualize the concept:
The problem with this scheme is that a trader can receive a very large allocation at a specific moment and, coincidentally, experience a bad streak in percentage terms during the allocation period, equating to a large loss in monetary terms.
In a situation like this, the trader may still have a very good track record deserving of future allocations, but due to the large accumulated losses, the trader must be able to overcome them first in order to receive success fees. The disadvantage is that if the future allocations are smaller than the principal allocation with which they incurred losses, it can be a challenging task.
The trader in this scenario may be tempted – logically – to close their DARWIN because they believe it is not worth continuing to pay the subscription in Darwinex Zero, thereby losing a good track record with the potential to attract investors from the Darwinex platform. Another option would be to migrate their activity to Darwinex to stop paying the subscription in Darwinex Zero, although this option is not always the most advisable for everyone, nor is it available to all traders due to regulatory restrictions.
So, what solution are we offering?
Starting in August 2023 and coinciding with the end of the capital allocation period relating to the April 2023 edition of DarwinIA SILVER, we are going to introduce the concept of “HWM reset” in Darwinex Zero (and very soon after that for our Darwinex traders).
When a trader has no open allocations in DarwinIA, fictitious profits will be introduced into their history so that the HWM matches the cumulative profit to origin. This way, in any new allocation the client receives in the future, they will start earning performance fees without having to recover the accumulated losses up to that point.
Following the previous example, let’s consider a hypothetical scenario in which the trader receives continuous allocations until the 6th month. In that month, their last allocation closes, and they receive a new one. According to the new rule, we reset the High-Water Mark (HWM) at that moment, introducing “fictional” profits of €7,000 as part of the HWM reset.
Now, what happens to DARWINs participating in DarwinIA from Darwinex?
Very soon, hopefully in September or, at the latest, October 2023, DARWINs from Darwinex will also participate in DarwinIA SILVER and DarwinIA GOLD. This means that the current DarwinIA will disappear (more information on this coming soon). From that moment on, we will also apply the new criteria to treat the HWM for DARWINs participating from Darwinex.
We are confident that this new measure will make our allocation programme even more attractive, and we hope it will further encourage you to work on your track records in the long term.
Like always, if you have any doubt about this update, please do not hesitate to contact our Support Team at info@darwinex.com
Thank you for reading,
Your Darwinex team.