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Clarification on VaR

Hi All,
Just need to clear something up.

If I see next to a traders equity the following > $ 10,000.00 (VaR 1.91 %)

Would I be correct in saying that the traders themselves are operating at a VaR of 1.91%?

Second, does this mean that the trader has a 1 in 20 chance of losing 1.91% of their account in any given month? And that 19 out of 20 months they will not lose more than 1.91%?

Cheers

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YES


YES

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No, the correct sentence will be: “The trader has a 1 in 20 chance of losing more than 1.91% of their account in any given month”
And remember that it would translate to a loss in his/her Darwin of much more than that 1.91%.

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Normally VARs are referring to a probability outside a range; i.e. 5% chance of a monthly return outside +/-10% return range. This means a 2.5% chance of less than -10% but also 2.5% chance of more than +10% return each month. But perhaps the Darwinex algos are set up to fix VAR at 5% chance instead of 2.5%. The VAR page on the Help site is not so helpful when it says:

This means that, 1 our of every 20 months, the minimum loss estimated of the capital will be 10% **or less** .

I fear you unfortunately copied a misleading part;
Same link:

Example

Imagine that we invest 1000€ in a DARWIN. Remember that all DARWIN are listed with a 10% monthly VaR.

What would be my risk?

Statistically, 1 month out of every 20, I can loose 10% of my investment or more. Therefore the minimum expected loss of capital, 1 month out of every 20, will be 100€.

That is confirmed on that page here:

Which risk is higher

Imagine that a trader has a system trading with a 25% VaR. Nevertheless, thanks to Darwinex’s risk management algorithms, the DARWIN that replicates the underlying strategy has a 10% VaR.
Who trades with more risk, the DARWIN or the underlying strategy?

The answer is simple, right? Without a doubt it is the underlying strategy because, 1 out of every 20 months, it would lose 25% of its capital or more, while the DARWIN would lose 10% or more of its capital, 1 month out of every 20.

sorry, but still confused by it

so if I read you right, if there is a VaR of 2%, then 1 in 20 months you will lose 2% or more

How is it then that if the trader themselves has a VaR of less than 10% (and I have found many like this) but the Darwin still has it set at 10%. wouldn’t it go like this

trader 1% darwin 1%
trader 5% darwin 5%
trader 10% darwin 10%
trader 15% darwin 10%
trader 20% darwin 10%
and so on?

No, The traders trading their account with a VaR of less than 10% will have the Darwin trade sizes scaled up to give a VaR of 10% (otherwise the whole idea would not work).

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Ok I see now. Thanks

Well, I have one query, I have seen some Darwins who have lost more than their operating VaR more than than once in last 12 months!!!

So VaR is really effective to safe-guard the investor?

It’s a probability, not a guarantee or certainty.

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VaR is not max drawdown, you can lose 5 or even 10% for 3 or 4 consecutive months and the loss is much bigger than 10% .
Many darwins have a terrible month like -15% or more but never more than once per year.
Even if VaR would be more precise or calulated in a different way it would not solve the main problem for investors: finding robust winners.
A winner will make up to 40% next year, a loser will lose up to 40%, with any distribution.

I agree that for investor VaR is just probability…


I know VaR is not drawdown (neither maximum nor period bounded)

Let me explain how I understand VaR from the investors’ point of view:
10%VaR means an investor is very unlikely to lose more than once 10% in 20 months, Right?

If no, then it might be helpful for a trader (to evaluate trading strategy for the same VaR), but for the investor, it serves very little purpose.

Hmm, maybe I misunderstood you, but here I am not talking about smaller losses than VaR (even if slowly and gradually losing money every month).

I wouldn’t be too sure about that, this one has nearly done -15% months twice this year, and the year is far from over.

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Not quite, the Darwinex statement is that an Investor is likely to lose at least 10% one month in 20

Full explanation here:

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Ok, I misunderstood it
Thanks