This approach seems to be equivalent to adding in investor’s portfolio group of DARWINs, which selected for DWEX for current month. This operation processed only for investors, who buy DWEX as a group of DARWINs and processed by darwinex.com. Investor can’t change DARWINs in this group, he can only “sell” all DARWINs in group at once (“sell” DWEX).

Lets imagine there are only 5 DARWINS in the DWEX: DARWIN1,… DARWIN5

Let we have one investor, he buy DWEX and allocate $66667.

So, to his Portfolio added following DARWINs:

DARWIN1 with $13333

DARWIN2 with $13333

DARWIN3 with $13333

DARWIN4 with $13333

DARWIN5 with $13333

because each DARWIN in DWEX group must get $66667 / 5 = $13333

Let as in example above

DARWIN1 wins 20% in a month,

DARWIN2 wins 15% in a month,

DARWIN3 wins 5% in a month,

DARWIN4 loses 5% in a month,

DARWIN5 loses a 5% that month.

Total profit for DWEX group of DARWINs is

(20% + 15% + 5% - 5% - 5%)*$13333 = 30% * $13333 = $4000

and for perfomance fee will be allocated

20% * $4000 = $800 and after collecting fee for the next month investor have to have

$66667 + $4000 - $800 = $69867

In this model

DARWIN1 get fee 20%(profit) * $13333 * 20%(fee) = $2666.67(profit) * 20% = $533.33

DARWIN2 get fee 15%(profit) * $13333 * 20%(fee) = $2000(profit) * 20% = $400

DARWIN3 get fee 5%(profit) * $13333 * 20%(fee) = $666.67(profit) * 20% = $133.33

$533.33 + $400 + $133.33 = $1066.67

As you can see, $1066.67 > $800, which investor must pay from his profit to DARWINs

DARWIN4 get (-5%)(profit) * $13333 = -$666.67(profit)

DARWIN5 get (-5%)(profit) * $13333 = -$666.67(profit)

And after collecting fee investor will have

$66667 + (20% * $13333 + 15% * $13333 + 5% * $13333 - 5% * $13333 - 5% * $13333) - $1066.67 =

$66667 + ($2666.67 + $2000 + $666.67 - $666.67 - $666.67) - $1066.67 = $69600.33

$69600.33 < $69867 (-$266.67)

I found a mistake in my previous post.

In example I wrote

`$TotalNetProfit = $66667 * 30% = $20000`

but correct is

`$TotalNetProfit = ($66667 / 5) * 30% = $4000`

where 5 is count of DARWINs in DWEX

I’ll fix it.

So, if we look at the DWEX as a group of *separate* DARWINs we get different results instead if we look at DWEX as a *one financial instrument* with (30/5)% = 6% profit in this month.

Why? I don’t understand it clear. When I started this post I think that I’ll get the same results for group and for one. May be there are some mistakes…