[HOWTOINVEST] Your approach as a Darwinex Investor

[DeLorenzoFund]

I wanted to start this thread to get a better understanding as to what is like to be on the investor side at Darwinex.

I've been trading my current strategies for the past three years, on Darwinex since April of this year, I have not had any issues trading with them.
I'm a trader but also a long term investor.

I fully believe in my strategies and my ability to continue executing them, I have realistic goals and I see my trading as part of my overall portfolio, using my trading as a diversifier and an hedge against the broad market exposure in my long term portfolio. I also have accounts outside of Darwinex where I run my strategies on.

What I would like to know from the investors at Darwinex is:

• How has your experience been so far?
• What is the reason for you to use Darwinex?
• What is your approach when it comes to selecting Darwins?
• What do you look for in Darwin before investing?

I can understand the necessity of the Risk Engine when it comes to protecting investors and weed out gamblers.

• What is your opinion on how the Risk Engine has performed for you in the past versus the trader's strategies?

In my trading I use a specific set of rules that define my strategies to make sure I don't do anything out of emotions or feelings. I'm curious if anybody is using a similar approach when it comes to selecting Darwins or any other alternative investment product to create an overall investment strategy composed of those assets.

I look forward to many responses and opinions!

 

[CavaliereVerde]

Anyone investing real money on Darwins besides me?

 

[trilobite]

Anyone investing real money on Darwins besides me?

Nope.

 

[CavaliereVerde]

How has your experience been so far?

2016-2018 :
2018-2019:
2020-2024:

What is the reason for you to use Darwinex?

Make money?

• What is your approach when it comes to selecting Darwins?
• What do you look for in Darwin before investing?

See my topic:

[PORTFOLIO] CavaliereVerde investing

Here I will continue my investing journal on Darwinex. https://community.darwinex.com/t/cavaliereverde-live-investing/2341/1485

www.trade2win.com

What is your opinion on how the Risk Engine has performed for you in the past versus the trader's strategies?

The problem is not the risk manager but the lack of alpha, stuff that made pips before the investment and no more pips after the investment, luck and survivorship bias.
This topic is a good explaination of why it is insanely difficult to make money on Darwinex:

[HOWTOINVEST] Investing Darwins: pitfalls, guidelines and expectations

They don't want customers to openly and publicly discuss their work and their policies. Expert users reproaching their failures and their promisses prevented big investors to join. I am preparing a series of posts for this thread.As an answer to Darwinex boss calling us...

www.trade2win.com

 

[DeLorenzoFund]

Thank you for engaging with the thread Cavaliere, and for the links you posted. I'm replying to you as I read the other threads you shared. I see you have been at Darwinex for a few years now so it's helpful to get your view.

I'm a big fan of Darwinex so far. I think it offers a good opportunity to traders but also to investors, opportunities that otherwise wouldn't be available to the average trader or investor without serious capital or knowing the right people in the industry.

It is very hard to find consistent performance from traders or fund managers. I started trading in 2019, but taking out my idiot years, I've been working on testing and defining my strategies since 2021, even though the results are great since I started trading them, there are periods of flat or underperformance, My focus on risk management has kept me alive and my mentality is '' just live to fight another day''.

Getting back to topic, I think in my opinion probably the best benefit of using Darwinex as an investor is the incredible diversification it can offer to the average broad market indices.

Let me explain better. Like I mentioned before, I use my own trading strategies not just with the goal to make money, but I use it in conjunction with my long term portfolio for retirement. I use my trading to hedge the broad market exposure and diversify, with the hope that when the next crisis happen and the major indices experience a drawdown my diversification and my trading strategies will be able to fully or partially hedge that drawdown, increasing the overall risk adjusted returns. Of my total portfolio I dedicate a percentage of that to trading. look at the example below ( This is just an example to show the concept and not financial advice)

70% Diversified Long Term Portfolio
30% Alternative Investments (Trading, Darwinex, Hedge Funds, Managed Futures Funds etc)

Of course those percentages are generalized and just an example as Alternative investments are high risk/high reward, so the percentage allocation needs to be adjusted based on risk tolerance.

That in my opinion is probably the best benefit of using a service like Darwinex or any type of hedge fund service.

Now the drawbacks, fees for Darwinex and Hedge Funds are very high, Darwinex still scores better than most Hedge Funds in that aspect.

Finding Alpha, 90% of traders have no idea about concepts of risk management or the long term vision that's needed to stay alive in the market. That makes the platform crowded and hard to find good strategies to invest. I think a possible way to limit losses on darwins investments would be to have a solid strategy and framework to define what to invest in based on set parameters.

This is an approach used by Venture Capital firms for example ( not financial advice)

Invest in 20 companies that show good prospects and fit the parameters with the expectation of:

10 are going to go out of business ( total investment loss)
5 are going to be ok (break-even)
5 are going to be successful ( Gains that will offset losses in the first 10)

Or using a index framework (similar to what Darwinex does with the DarwinIA contest)

For example, invest in the top performing 20 darwins of the previous year and monitor and rebalance the following year with the new top performing ones. This is similar to the market cap weighted approach of the major market indices. Always rebalancing as companies get delisted and new companies grow in market cap. This would require rebalancing to maintain the appropriate allocation split amongst the darwins.

Again, this is a generalization and I'm not suggesting doing something like this, it's just an example and please let me know your opinion.

Another way to possibly manage risk in those investments would be to split the investment overtime, Darwins are volatile investments, investing a set amount every month for example, would use that volatility to our advantage, as by averaging every month, overtime we would end up with a lower average quote and more managed drawdowns compared to a lump sum investment in the same Darwin.

(Nothing posted here is financial advice, so please don't follow any of those ideas without knowing the risks)

The risk manager helps to mitigate some risk from those individuals but also limits possibilities for good traders with solid risk management. I noticed on some of my strategies the risk manager has gone from as high ratio of 4, so that means for every lot I trade, the darwin will trade 4, (insane) to as low as (0.80) in a matter of months, while on my strategy I would still be risking the same percentage per trade, it wouldn't be the case on the darwin, and that would change the risk management in the darwin outside of my control. I find this limiting and possibly dangerous. So far no real issue with it, the darwins are tracking closely my actual strategies but that's something I'm keeping an eye on.

I know this is a pretty FULL reply but wanted to condense as much as possible in this response and I will get to reading the threads you shared now to get more input

 

[IlIlIlIlI]

Anyone investing real money on Darwins besides me?

No, I don't really remember the year I stopped that, it could have been 2021

 

[IlIlIlIlI]

There are at least several huge gaps in the Darwinex system which avoid that investors can play better than black boxes:

- only one demo portfolio possible (comparison of investing strategies not possible before risking/losing real money)
- filter criteria show results only from today in the past
- fee structure resulting in paying fees for losses
- calculations of the risk manager are a black box for traders

That could be significantly improved by enabling the following technical options and features:
- allow more than one demo portfolio (IMO 3 or better 5 would be enough)
- allow filtering in the past (like 20 best performing Darwins in 2023, 2022 etc.)
- take fees only from profitable investments or profitable days (including investment fee)

I'm sure the idea behind the Darwinex system is more than a decade old and should be revised.
But no significant changes in the right direction happened. ("Pivot" was the wrong direction)
The investable attributes are useless besides "loss aversion".
The periods for the risk manager calculation should be shortened to take a trader out of punishment mode earlier.

A significant number of of my demo portfolios converted a small profit into losses because of the fees.

So both - the trader and the investor - are currently playing against intransparent black boxes with a lot of useless thoughts between their ears.

 

[DeLorenzoFund]

There are at least several huge gaps in the Darwinex system which avoid that investors can play better than black boxes:

- only one demo portfolio possible (comparison of investing strategies not possible before risking/losing real money)
- filter criteria show results only from today in the past
- fee structure resulting in paying fees for losses
- calculations of the risk manager are a black box for traders

That could be significantly improved by enabling the following technical options and features:
- allow more than one demo portfolio (IMO 3 or better 5 would be enough)
- allow filtering in the past (like 20 best performing Darwins in 2023, 2022 etc.)
- take fees only from profitable investments or profitable days (including investment fee)

I'm sure the idea behind the Darwinex system is more than a decade old and should be revised.
But no significant changes in the right direction happened. ("Pivot" was the wrong direction)
The investable attributes are useless besides "loss aversion".
The periods for the risk manager calculation should be shortened to take a trader out of punishment mode earlier.

A significant number of of my demo portfolios converted a small profit into losses because of the fees.

So both - the trader and the investor - are currently playing against intransparent black boxes with a lot of useless thoughts between their ears.

You have some great points, thank you for taking the time to respond to my questions.

I opened a demo account as an investor a on September 18th to ''invest'' in my own Darwins, I was interested in getting the investor experience at Darwinex and see if I could improve my strategies further, currently the demo account shows 3.22% return net of fees with the lowest point at -0.89% and the highest 5.49%.

I agree that having multiple demo portfolios and more ways to filter Darwins would increase the ability to test a strategy and that seems like it should be an easy fix for Darwinex.

I don't think the fees alone are responsible for the general underperformance of trading strategies on Darwinex. Fees have a serious impact on returns but I have seen index style mutual funds that just track a basket of equities charging in the range of 2% and 4%, which is a crazy high expense ratio, mostly a problem in Europe but even in US Mutual Funds is not uncommon to find 1% and above expense ratios, a lot of those funds are profitable tracking the index that they are designed to track. This of course excludes any performance fee paid to the trader and Darwinex which is 20% of the HWM, this entails that the investor has to make a profit in the quarter before that fee is paid out, and this is standard in the industry for hedge funds. The real problem is finding good traders and good strategies and how to build a set of rules that will get you in or out of the investment. The strategies past performance alone is not enough, the point we get in or out of the investment in that strategy has more impact on our performance.

I agree on Loss Aversion being one of the most important, that would be one of the first ones I look at, not a fan of 90% win rates going after 10 pips and getting destroyed in one trade losing 100 pips even with that attribute it is interesting to compare the underlying strategy to the Darwin to see how the risk manager handles the trades.

Going to the risk manager now, I totally understand the need for Darwinex to implement it. Most traders don't know how to manage risk, and most investors aren't even aware of the risks. Darwinex has to put a backstop and somehow control the volatility that can be expected from an investment. I also like their point of standarizing risk across strategies to ensure that a trader like me ( that doesn't swing for the fences and seeks long term growth) doesn't have to compete with the next high roller betting the farm in one trade seeking returns in 1000% range.

The lookback range of the risk manager should be adjusted based on the average holding time per trade of that particular strategy, some traders place hundreds of trades in a 45day cycle, in that case the look back period should be shortened as their average holding time might be somewhere in the range of 2 to 10 minutes, while a position trader averaging 1 trade in a 45day cycle and average holding time of 3 months is impacted differently by the risk engine.

A solution would be to take the average time in trade of the strategy and multiply it by 3 to get the lookback period of the risk engine.

That way neither a scalper or a position trader get penalized or helped by the risk engine ( it can hurt you or it can boost your return)

I don't agree with Darwinex idea that the longer a trade is held, the more risk it represents and so the risk engine needs to step in. Holding time has nothing to do with risk, frequency of trades surely does. Example below:

Risk in holding period per trade

5 min chart (risk 2% between entry and stop loss) holding time 1 hour
weekly chart ( risk 2% between entry and stop loss) holding time 6 months

both strategies are risking exactly 2% no matter how you slice it, so the risk engine shouldn't penalize the trader that keeps the position open for longer.

Risk in frequency of trades.

5 min chart (risk 2% between entry and stop loss) holding time 1 hour, average trades per month 50, 2x50=100 ( 100% Monthly risk exposure)

Weekly chart ( risk 2% between entry and stop loss) holding time 6 months, average trades per month 1, 2x1= 2( 2% monthly risk exposure)

So far the risk engine has worked great at tracking my strategies so I'm not saying it should be revised or changed but I definitely keep an eye on it.


Let me know what you think

 

[hayseed]

I don't agree with Darwinex idea that the longer a trade is held, the more risk it represents and so the risk engine needs to step in. Holding time has nothing to do with risk, frequency of trades surely does. Example below:

Risk in holding period per trade

5 min chart (risk 2% between entry and stop loss) holding time 1 hour
weekly chart ( risk 2% between entry and stop loss) holding time 6 months

both strategies are risking exactly 2% no matter how you slice it, so the risk engine shouldn't penalize the trader that keeps the position open for longer.

Let me know what you think

//------

for some reason the longer a trade is held, the more risk it represents makes perfect sense to me.....

seems similar to crossing a busy road..... or holding a hot potato.....

would the 6 month long trade justify the increased risk of holding...... of course it might......

but that's a lot of overnights, weekends and non farm payrolls to live thru......

and all it takes is 1 to be fundless......h

 

[IlIlIlIlI]

//------

for some reason the longer a trade is held, the more risk it represents makes perfect sense to me.....

seems similar to crossing a busy road..... or holding a hot potato.....

would the 6 month long trade justify the increased risk of holding...... of course it might......

but that's a lot of overnights, weekends and non farm payrolls to live thru......

and all it takes is 1 to be fundless......h

and don't forget the swaps if you have to pay it which could ruin the profit when holding for a longer period

 

[DeLorenzoFund]

Of course more things can go wrong overtime and it is much harder to predict what will happen to an asset price over the course of 6 months as supposed to the next 5 minutes but in terms of actual risk, if the position size is managed correctly, the trade risk is exactly the same. look at the example below ( This is just an example and not a trade recommendation, to make the concept easier to understand, pretending that we were trading Apple stock in shares)

$100k account size
max risk per trade 1% ($1000)
AAPL trading at $230 per share

5 Minute chart setup ( holding time 20 min)

Long Entry at $230
Stop Loss at $229
Risk amount per share $1
Position size 1000 shares
Open Risk $1000 ($1x1000 shares=$1000)

Weekly chart setup ( holding time 6 months)

Long Entry at $230
Stop Loss at $220
Risk amount per share $10
Position size 100 shares
Open Risk $1000 ($10x100 shares= $1000)

From the example above you can see that the risk across the two different trades is exactly the same, the only variable is the position size, that is adjusted based on the distance to the stop loss, the tighter the stop loss, the larger the position size to maintain the level of risk the same across the board, that is why the 5 min chart trader tends to use more margin or leverage than a position trader, also weekends and NFP wouldn't necessarily add risk since my stop loss is predefined.

Swaps do need to be considered when trading long term, but swaps can either be paid or earned. Holding a 6 month long position on a index will cause you to pay swap fees while a short position of the same duration will earn you the swap fee ( minus the markup and dividends, which will need to be paid out in this case) another example would be to hold a long position for 6 months on USDJPY, which will earn you a decent swap. But that's why I don't think it should be considered as part of the risk metric.

In my opinion the primary sources of risk in a trading strategy would be

Position size relative to entry and stop loss ( open risk per trade measurement like example above)
Frequency of trades ( for monthly VAR measurement )

For the risk engine it should be easy to average out the monthly frequency of trades and adjust the lookback period based on that, it would also be easy for the risk engine to calculate if the position size fits the acceptable level of risk based on entry and stop loss placement, this of course assumes that the trader has indeed placed a stop loss on the trade and will be disciplined enough to execute it without falling for destructive habits like hoping that the price will rebound, moving the stop or ignoring it if the price approaches that level.

I like the way this thread is going and I appreciate your opinion and experiences

 

[trilobite]

Of course more things can go wrong overtime and it is much harder to predict what will happen to an asset price over the course of 6 months as supposed to the next 5 minutes but in terms of actual risk, if the position size is managed correctly, the trade risk is exactly the same. look at the example below ( This is just an example and not a trade recommendation, to make the concept easier to understand, pretending that we were trading Apple stock in shares)

$100k account size
max risk per trade 1% ($1000)
AAPL trading at $230 per share

5 Minute chart setup ( holding time 20 min)

Long Entry at $230
Stop Loss at $229
Risk amount per share $1
Position size 1000 shares
Open Risk $1000 ($1x1000 shares=$1000)

Weekly chart setup ( holding time 6 months)

Long Entry at $230
Stop Loss at $220
Risk amount per share $10
Position size 100 shares
Open Risk $1000 ($10x100 shares= $1000)

From the example above you can see that the risk across the two different trades is exactly the same, the only variable is the position size, that is adjusted based on the distance to the stop loss, the tighter the stop loss, the larger the position size to maintain the level of risk the same across the board, that is why the 5 min chart trader tends to use more margin or leverage than a position trader, also weekends and NFP wouldn't necessarily add risk since my stop loss is predefined.

Swaps do need to be considered when trading long term, but swaps can either be paid or earned. Holding a 6 month long position on a index will cause you to pay swap fees while a short position of the same duration will earn you the swap fee ( minus the markup and dividends, which will need to be paid out in this case) another example would be to hold a long position for 6 months on USDJPY, which will earn you a decent swap. But that's why I don't think it should be considered as part of the risk metric.

In my opinion the primary sources of risk in a trading strategy would be

Position size relative to entry and stop loss ( open risk per trade measurement like example above)
Frequency of trades ( for monthly VAR measurement )

For the risk engine it should be easy to average out the monthly frequency of trades and adjust the lookback period based on that, it would also be easy for the risk engine to calculate if the position size fits the acceptable level of risk based on entry and stop loss placement, this of course assumes that the trader has indeed placed a stop loss on the trade and will be disciplined enough to execute it without falling for destructive habits like hoping that the price will rebound, moving the stop or ignoring it if the price approaches that level.

I like the way this thread is going and I appreciate your opinion and experiences

Agreed, but:
The risk manager does not take account of any stop-loss that is placed. That is a big weakness, and probably why it assumes holding a position for a greater period of time is more risky.

 

[DeLorenzoFund]

Agreed, but:
The risk manager does not take account of any stop-loss that is placed. That is a big weakness, and probably why it assumes holding a position for a greater period of time is more risky.

I just want to be clear that I'm not bashing Darwinex on this. I'm a big fan of the platform and the idea behind it, it definitely is challenging to create a Risk Engine as sophisticated as the Darwinex one, considering all the variables and the different risk management styles of each trader. I think that all considered they have done a great job at finding a possible middle ground when it comes to protecting investors while allowing the trader enough room to run the strategy, especially when we consider the human element of traders ( traders that managed risk correctly at the beginning and lose their heads later on )

My original point was that even though I'm capable as a trader to manage the position size in my underlying strategies, based on my own risk tolerance, the results might look different in the Darwin ( My darwin BVK was actually helped by the risk engine at the beginning) simply because the risk engine didn't consider the risk as high as I did, improving the overall return of the Darwin compared to my underlying strategy, while my other Darwin FZH, having experienced losses right from the get go, experienced a deeper drawdown than my underlying strategy.

The differences are minimal and it will be a lot more interesting to compare after 1 or 2 years of performance.

So as an investor, having no idea about the personality and risk tolerance of the trader behind the Darwin. How do we build an investment strategy based on the Darwinex metrics, taking the Risk Engine intervention ( positive or negative) into account?

 

[DeLorenzoFund]

This might be a little off topic, admin please let me know if it is, I didn't want to create an whole new thread for a question that might be somewhat related to this.

I have another 6 trading accounts outside of Darwinex where I manage my trading strategies, needless to say that's a lot to keep up on top of my 5 trading strategies on Darwinex I've been looking into doing a consolidation and possible small reallocation into Darwinex.

I currently have about 9000 Euros invested at Darwinex through my trading strategies (Trading Accounts)

I'm considering adding another 10000 Euros to Darwinex now that I'm more familiar with how the platform works.

I'm a little nervous about adding that sum directly to my trading accounts linked to my Darwins, as that would essentially double the equity the risk manager is used to, I have no idea how the risk manager and the var calculation would react to that. That leaves me with directly investing in my own Darwins as an investor. Has anybody done this before? Is the fee structure the same as if I was investing in other Darwins? I'd be paying the 15% Performance fee back to me anyway so I'm just curious if anybody has had any experience with a similar situation.

I have been running a Demo portfolio tracking my Darwins since September and it's been tracking close enough, I did trade in and out of it to try out the platform so now I'm running a brand new test which would be closer to a buy and hold approach. Keep an eye on my other thread where I'm running a Demo portfolio test on a $100K Portfolio.

[PORTFOLIO] Demo Portfolio test with my strategies.

I'm testing out a demo portfolio composed of my four Darwins ( BVK, CQL, FZH, DXH) and soon a fifth strategy when it becomes available will be added as well, the portfolio will be composed of all 5 of my Darwins with an equal allocation to each and monthly DCA. Initial balance will be $100,000...

www.trade2win.com

Thank you

 

[IlIlIlIlI]

I'm a little nervous about adding that sum directly to my trading accounts linked to my Darwins, as that would essentially double the equity the risk manager is used to, I have no idea how the risk manager and the var calculation would react to that. That leaves me with directly investing in my own Darwins as an investor. Has anybody done this before? Is the fee structure the same as if I was investing in other Darwins? I'd be paying the 15% Performance fee back to me anyway so I'm just curious if anybody has had any experience with a similar situation.

I always invested in my Darwins when they were investable.
My investment portfolio always had a x3 leverage, which means that the deposit is tripled. 10,000 EUR deposit gives 30,000 EUR to invest. (Your demo portfolios is unleveraged which is leverage x1).
You pay 20% investment fee for profits on the investment amount every 3 month, 15% are for the trader and go back to you for your own investment and 5% are lost (for Darwinex).

Depending on the VaR (which implies the replication factor) it could make sense to invest in an own Darwin instead of increasing the deposit on the trading accounts - as long as you are profitable.
The trades on the Darwin are always made for a VaR of 6.5 reduced by the Target Var if thr Target VaR is lower than 6.5. Reducing factor calculation: Target VaR / 6.5 (VaR).
With the current VaR of your Darwins with a value of about 7 IMO it could only make sense with a leveraged portfolio, otherwise you can hardly compensate the lost fees (5% investor fee for Darwinex plus 0.1 % management fee per month).

 

[DeLorenzoFund]

I always invested in my Darwins when they were investable.
My investment portfolio always had a x3 leverage, which means that the deposit is tripled. 10,000 EUR deposit gives 30,000 EUR to invest. (Your demo portfolios is unleveraged which is leverage x1).
You pay 20% investment fee for profits on the investment amount every 3 month, 15% are for the trader and go back to you for your own investment and 5% are lost (for Darwinex).

Depending on the VaR (which implies the replication factor) it could make sense to invest in an own Darwin instead of increasing the deposit on the trading accounts - as long as you are profitable.
The trades on the Darwin are always made for a VaR of 6.5 reduced by the Target Var if thr Target VaR is lower than 6.5. Reducing factor calculation: Target VaR / 6.5 (VaR).
With the current VaR of your Darwins with a value of about 7 IMO it could only make sense with a leveraged portfolio, otherwise you can hardly compensate the lost fees (5% investor fee for Darwinex plus 0.1 % management fee per month).

Thank you for your response. I know giving 5% away of my own work would stink, but I would take that if it allows me to invest more in my trading strategies without potentially messing with the risk manager and the position sizing.

on top of the 5% performance fee, did they also charge you for the 1.2% management fee?

If I may ask, are your Darwins still available or you stopped trading?

 

[IlIlIlIlI]

on top of the 5% performance fee, did they also charge you for the 1.2% management fee?

Of course, 1.2% per year or 0.1 % per month - deducted from your portfolio balance daily (daily rate calculation).

If I may ask, are your Darwins still available or you stopped trading?

I stopped and closed all my real money Darwins, the last one also because of the German tax rules since 2021 (20k loss cap on ALL single losing trade in a year added to an amount, regardless how much profit you made, you pay taxes on all profit trades reduces by the minimum of 20k or the amount of or losing trades) and the DarwinIA rules (min. investment of 1k).

 

[DeLorenzoFund]

Of course, 1.2% per year or 0.1 % per month - deducted from your portfolio balance daily (daily rate calculation).


I stopped and closed all my real money Darwins, the last one also because of the German tax rules since 2021 (20k loss cap on taxes on ALL single losing trade in a year added to an amount, regardless how much profit you made) and the DarwinIA rules (min. investment of 1k).

I started on Darwinex thinking I was just going to do one strategy, all of a sudden I'm 5 strategies deep, all with a minimum investment of 1k I think I'm done adding strategies for a while now. Thank you for providing more details on how to invest in my own Darwins, I appreciate your help.