Dear @BenHardy, @finbou, @tommy9097 & @Strivetrader
First of all, many thanks to you all for taking the time to write such thoughtful & constructive feedback on making the most from Darwinex. It's hugely appreciated.
We did mention & shared some verbal comments during the "Ask me Anything" session last week - but given you took the time to start the debate, I'll do my very best to give our view from the inside.
I look forward to your thoughts & challenge!
The Darwinex USP
It means the world to us every time a qualified trader appreciates the thinking that went into creating it all. We'll keep at it!
Proprietary Risk Engine
Thank you for explaining the need for an independent risk management service. This is the first line of defence to preserve not only Darwinex, but also spillover effects from trader to trader. E.g. if trader A blew investor 1's money, the next thing investor 1 would do would be to withdraw funds from trader B - who behaved responsibly. This is an unacceptable risk.
Changes to risk: This is true - regardless of how one parameterises the engine, there will be a transition period until the independent engine "learns" about the new leverage levels. But isn't this part of the price to be paid for independence? Think of it another way: if you worked at a hedge fund, surely you'd have to inform & seek approval from middle office before implementing a significant change?
Our team often provides specific advice on how to incorporate similar changes & minimise investor friction. Rather than provide a 1 size fits all answer, we'd be delighted to look at the individual DARWIN & change at hand in order to find the best solution
Once in a quarter opportunities: The first question for the trader is - what's wrong with trading once a quarter if that's the real opportunity? This would make the "risk management problem" go away.... More to the specific point, traders are optimistic souls - that's why we love them Investors are risk averse, and a risk engine MUST look at the worst case. In the case you mention, a position 16 x more levered than usual will have an outsize impact on investor performance (positive or negative). What do you call something that lets a trader deviate 16 times from its typical leverage? A risk manager? Or a groupie cheering on from the sidelines?
Improving the Risk Engine
We could argue forever about where to draw the line, but it's great to agree that someone HAS to be draw a line in the sand, and he/she must be INDEPENDENT from the trader, in alignment with the investor.
The risk engine isn't perfect. But possibly it's biggest gap at the moment is that it is too much of a "black box" to traders. We're working on functionality to provide instant feedback on if / why the risk engine intervened. This will develop their "intuition" into "how it ticks".. and we're confident this will improve everyone's contribution on how best to continue improving the engine. Crucially: we all know it's not perfect & it never will be.
Hopefully increasing transparency we'll take all of us to a point where market & trader lessons inform it faster than they currently do.
Capacity and slippage
Several well thought points for an area (capacity management) that requires development. Conceptually one could break it down into 2 concepts:
Capacity maximisation: empower DARWIN providers with tools & information to control investor trade fractioning & sequencing to make the most of the Depth of Market. We are working on this, and expect significant improvements to slippage / divergence for most strategy types once this goes live,
Capacity rationing: because capacity is a rival good, ideally it should be used by investors who extract the most profits. In a hypothetical future, this might even involve traders filtering which investors are allowed to back them (this is a long term idea, we're just including to show you "how the vision ticks")
When it comes to liquidity providers: Darwinex have access to the liquidity providers, and to alternative feeds with better Market Depth (but also wider spreads!) than ToB. Part of capacity maximisation will be to give traders transparency & advice on which of the available feeds to trade. It will also involve barring some "toxic" traders from free-riding off a feed designed for benign retail flow in the broker. E.g. it's not a question of having more providers, but of how we make them available to customers.
One of the functionalities we're working on is disclosing the "DARWIN trading API" DarwinexLabs use internally for everyone's benefit. This will open a wealth of options to the more sophisticated traders and investors already on the platform... including the option of a DARWIN EA marketplace, etc. Nothing would please us more than building an eco-system around the DARWIN asset, and we'll do everything in our hand to support it.
Having said that, current priorities are as per the order of your contributions. 1) Increase transparency around the risk engine, 2) Improve the risk & capacity management toolkit and 3) gradually expand the asset class.
Future of Darwinex
There's a large team doing their very best to create a true asset class, and make it available to both managers and investors. As you'll hopefully gather from the above, we know where we want to take Dawrinex - it's all a question of making the best use of the means available to us... and we'll get there with your continued support.
Very happy to hear your thoughts and challenges!