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Does the duration of high-water mark periods affect profits?

Your example is wrong. A buy&hold investor makes exactly the same profit and the trader gets exactly the same fees in 12 months regardless when the fee is paid. The only difference is how often and when the trader is paid.
The investment account - not the wallet - will run into debit if the fees can’t be paid by the rebates received during the period which usually is a fact. It is covered when a position is sold.

Also if the investor sells his position every quarter to pay the fees and buys it back with the money left (what he is not forced to do) he will have 760 € and not 570 € as you calculated. So the difference is much less than you suggested and it is worth to pay the traders earlier.

I assume you lost the 80% profit the investor can keep after every quarter and you forgot to reinvest it.

The difference between quarterly sell&rebuy with the full amount left (including 80% of the profit) to holding (810 € as you calculated right) is 50 € (810 - 760) and not 240 (810 - 570 from your figures).

Each quarter the investor has 15.28% net profit after paying investor fees. 6% monthly gives an equity of 1.06 * 1.06 * 1.06 which is about 19 % gross profit.

1.1528 * 1.1528 * 1.1528 * 1.1528 (net balance of 4 quarters) is 1.766, which is a net profit of 766 Euro after paying investor fees.

Thanks for your reply.

yes I have to admit that I made a mistake in my calculations, you are absolutely right…

Even though I still don’t understand the selling and buying back and rebate, care to explain more ? Thanks in advance.

44 euro is still better, how about your thoughts when a trader has a 10% profit in 3 months wiped away in the next 3 months ?

Cheers,
LDFX

If your investor portfolio is on debit, every payment - from wallet or selling a position- is used first to bring it on credit again.
It makes also sense to sell and rebuy a buy & hold position from time to time if you use double leverage, which is only on the initial position and not on the profit.

In my calculation it is more hypothetical to bring the payment date for investor fees in line with the net profit.

First thought: the investor can always sell when a DD starts, he could also use a stop loss to keep a (smaller) net profit for himself after the payment of investor fees.

Darwinex uses a high water mark for investor fees so if your trader makes up to 11% (of the remaining investment) in the next quarter he will get nothing, only if the high water mark is exceeded on the next payment day.

That implies that a) the trader is profitable on the long run and b) the investor wants to hold the position. I am not this type of investor, and if the trader fails to be profitable again the fees are also lost.

I thought about other models like retaining half of the fees and paying it later but that is much more effort for Darwinex and IMO leads investors in the wrong direction to hold losses and increase them by holding a losing position.

At the end I always come to the point that investors have to learn to sell in time. More former heroes are falling or giving up than recovering, as far as I could watch it.

This is not correct, but also saying that quarterly and yearly is the same is not correct.

You can see that the difference is very small at the end of the year.
In simple words:

  • Investor loses a bit of profit because he/she has less money to re-invest quarterly, compared to yearly. The amount is less than it seems. Considering a profit of 20% per quarter, he/she pays 20% fee on that 20% profit, so he/she has 4% less to re-invest. This means that a further 20% for the next quarter results in a missed profit of 20% on 4%, that is 0.8%.

  • Traders makes more when they get paid quarterly. The logic is simple, no need to add any math. They can simply re-invest the fee and get 100% out of it, not 20%.

We are talking about small differences, even considering an astronomic return of 100% per year.

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@FedericoSellitti
Your example is obviously also completely wrong as performance fee in the 2. and 4. quarter is lower than in the quarter before in the quarterly column.

You didn’t use the new balance deducted by performance fee for the follow up profit and fee calculation but the balance before which is nonsense.

The high water mark is calculated on gross profit on the payment date and does not regard paid fees.

You should correct your excel.

The difference is about 50 EUR as I pointed out before.

si tacuisses , philosophus mansisses

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Let's get it on!

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Cool!

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@IlIlIlIlI
“performance-fees” is an interesting subject but when we create new tags we should search the community for discussions about that subject.
Now I am doing it. :wink:

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This is for the real traders that trust their strategies.:wink:

The vast majority of the population of the social trading world are just selling their past luck.
If the luck last for another quarter they make fees, it is exponentially more difficult for luck to last for one year.
Fees are never at stake, even if they were annual.

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The tag was created by mods when the posts were disconnected from their original thread.
I think it is useful. :slightly_smiling_face:

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At Darwinex it is mainly put on the trading account to get the full notional allocation from DarwinIA as long as the account has less than 10k.