Here comes the 8th episode of our series “Trader Nation”!
We start explaining why VaR (Value at Risk) is a proper measure of risk. With 10% monthly VaR at 95% confidence, investors can go to a desert island without Internet next month, knowing that with 95% probability they’ll do better than -10% and with 5% probability they’ll do worse than -10%.
So, whilst DARWIN investors are in the desert island:
- The trader will have no incentive to change his risk
- He gets no cut in commissions
- He only earns on success
- He’ll ruin his score by changing his game
- Darwinex will control DARWIN leverage so that as DARWIN investors know those are the odds
- Apples to apples consistent with that DARWIN’s past
- Apples to apples comparable to past behaviour by every DARWIN…
Otherwise, it’s all a noisy haystack that smart investors won’t approach.
And the way is to build up our stack from:
- A trade -> trade level risk
- A position -> unit measure or risk
- A strategy -> proper measure of risk
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