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From fixed VaR to variable VaR

The change is planned to be implemented this weekend. More details in this blog article: Change from fixed VaR to variable VaR in the DARWIN assets

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I think Darwinex will shoot itself in the foot again if they really implement this VaR change on all darwins.Why?Just ask yourself why they didn’t put real stars like HFD and CIS into this article for illustration purposes.Young darwins who are getting better with their trading and have rising Returns,while simultaneously lowering their Risk-VaR will be heavily penalized for such commendable behaviour.Even more newcomers will become discouraged in their first 12-18 months on the platform.Sad.
And darwinex doesn’t warn newcomers about crucial thing like mechanism for acquiring Ex attribute,I am sure they will not warn newcomers about new landmine -absolute must to keep your VaR stable.
This thing will not be good for investment platform if they implement it on all darwins and not only on older who are volunteering for it.
This company seems to be completely hijacked by quants.
Also,this new thing requires at least 6 months of trading data(VaR),while people here are publishing new darwins after 1-2 months of trading.

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I was worried that they wanted to create 2 classes of Darwins so now I am very happy that the same rule will apply to every darwin.
From what I see the quality (Return/DD) is always better even when final Return is lower.
The former change on April 2017 made everyone happy so I am confident that it will be the same also this time.

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Maybe another unpopular.

Now, nobody have interest to stay under 10% Var. For darwinia or for investors to be seduced by return, the optimum method is to keep a 10% Var Darwin. So the best way is to stay over 10% most of the time, say 12% to be sure.

Then the principal effect will show traders moving Vars from 6% to 12% (for thoses at 6%).

Double commissions for Darwinex. :wink:

I am missing ERQ in the examples. Can you deliver it? The VaR is hazardously low since more than 6 months.
Will it be caught by a minimum VaR of 2%? I would appreciate that.

I dont’ think so, now the average var for Darwins will be 7.5% so the size of every replicated trade on investors will be 25% lower, so 25% less commissions.
Also whe they reduced the var from 20 to 10% it was bad from a broker point of view.

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Please, talk for yourself. I disliked the change on 2017, and I not the only one.
Now, yes I am happier, at least the change is for all, so there won’t be darwins of first class and second.
However, I’d prefer everyone would trade underlined strategy and darwin at same VAR at all the time (maybe a cup of 20-30% to offer some protection). This is trading the markets, not treasure binds, so it has to be risky to get high returns too. i dislike too much protection.

Agree but it depends of the scenarios regarding traders behaviour.

If most of the trader tune to be over 10% (what I think will be done), nothing change for investors.

It change only for traders.

Every change of trading behavior comes with a high risk fir the outcome and so for investors too.
On fact I have seen how most of migration accounts use to suffer a lot the first month because the VAR changes their underlying risk. Also, home made traders who decide to change the VAR usually have same issues.
We’ll see, but this is delicate fir everyone.

I dont have a long track record of trading at darwinex, so my viewpoint about this topic is just my opinion what I had observed about Risk Manager. I am currently trading with both of my darwins at target risk of 10% VaR. Still, from last month, my variance continually reducing because my Volatility Breakout EA not opening any trade due to low volatility and my Darwins are trading at higher risk per trade for My other EAs. So I think after variable VaR there will be no sudden increase in risk due to a sudden change in the market situation.

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Exact!
I also have a filter on my algos.
Frequency is quite stable but if we have an average of 20 trades on a good month I have 16 trades on a bad one and those trades are slightly more leveraged to meet var 10% .
So the result is that in bad times trades are more leveraged and it is more likely to leverage a losing trade than a winning one.
In my case the difference is small but after years and hundreds of trades it leads to a significant lower return and higher DD.
This is the reason why flexible var improves the quality of darwins.

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We used representative darwins to illustrate the impact of the change. It is not our aim to hide anything.
Here is the impact on CIS:

And here is the evolution of the underlying strategy:

Here his VaR evoluiton:

Yes, the new darwin makes less returns. But, from our experience and all the data we have collected form our investors, we can demonstrate that in general, having better returns on the long term it doesn’t imply more performance fees or gains for the investors.

CIS and HFD, are extreme examples, because they did not suffer big drawdowns yet, and at the same time they were lowering their VaR drastically over time.
But, imagine that they suffer a drawdown while they are decreasing their VaR… Investors would suffer a much bigger drawdown compared to historical drawdowns of the underlying strategy, and i can assure you with data that most of the investors would close the investment just before of the recovery, scared of the unexpected drawdown, losing therefore a lot of performance fees for the darwin provider. In those situations the darwin provider and investor complain to darwinex, because they don’t understand the unproportional drawdown.

This is exactly waht happend recently to LVS, by the way. We need to care not only in returns, It is important that the best traders perceived that the risk manager is not hurting them and avoid the panic of investors in period of drawdowns. If we don’t succed, the best traders will never come to darwinex, and that is not a good business for our exchange.

On the other side, reducing the average VaR increases the capacity of the darwin. It means that if a darwin fills its capacity makes the same money with 10% VaR or 8% VaR.

I can assure you that in 3 months from now, darwin providers will feel much more confortable with the new risk manager. Give us 3 months of courtesy, please

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What’s about ERQ? It’s inactive since October last year.

Does the variable VaR help @OakLadder to trade again?

I have the feeling that these changes are thought more for algorithmic traders, and also these will be more benefited from the new VAR, am I wrong?
Both CIS and HFD are discretionary traders, and these kind of traders are more capable to make smoth curves, correct?
Discretionary traders can trade less or make some adjustments when the times are hard or the market doesn´t draw the entries that usually are searching for. Algorithmic traders suffer more when the market is not fit for the set up, and so have DD due to that (because it is very difficult to adjust and update the rules to adapt the strategy to the continuous changes the markets do.
Anything to say about this?

no, HFD benefits from this. his VAR has been steadily falling for months currently at 3.22. which means his Darwin is forced to higher leverage. HFD has been trading with lower leverage on his underlying strategy to counteract this, which sends VAR down more. the spiral.

this flexible VAR is exactly for this scenario. I’m happy to see this new flex var implemented.

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No, look at the numbers.
HFD has been lowering the VAR gradually, and for that reason (and because he has handle it very well) the profits of the second semester of 2019 are HIGHER on the Darwin than the UNDERLYING strategy. Make the numbers and you’ll realize it.
Now, his VAR will be automatically increased, what will lower his Darwin profits.

I can’t say that this change benefits one or another type of trading. It will assure that the darwin behaves more similar to the underlying strategy, and therefore, i hope darwin managers will feel they have more control over the risk manager without caring too much.
On an ideal world, it would be amazing that everyone supports the risk manager of darwinex above any other asset management solution. And this change is a step on that ambitious direction.

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and his Drawdown. which is the point

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Very well done for this new feature.
From a theoretical point of view, it looks brilliant. I will wait a few months to see how it really works out for my Darwin.
You might like this update or not, one thing that we can all appreciate is that Darwinex team is not sitting on their hands, waiting for the commissions to come.

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Great job, keep it up.

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