CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. -- % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Problem of performance fee equalization

Problem of performance fee equalization:

If Darwinex will not offer darwins to the portfolio manager then investors will invest in individual darwins and face the Performance Fee equalization problem. That is you will invest in 10 traders each with $1k, 9 of the traders will make $1k profit so you will have to pay 20% = $200 performance fees, and the 10th trader will lose $1k. That means the sum of your 10 choices made zero profit and you lose a further $200 in performance fees. As you can see this is what everyone in the industry is currently faced with and it hurts the investor, a traders’ lifeblood.

I think most investors on this platform will experience this problem.

Does Darwinex interested in solving this issue? or It is upto portfolio manager? To enable Darwins on portfolio manager can solve this issue and much awaited feature of Darwinex…
@bianka
@CavaliereVerde
@ignacio

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The solution is called stop loss, no need to wait until a full 1,000 is lost.

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Well identified problem @Kaushal79!

Our current solution to this problem is paying diversified investors diversifications rebates.

As to a future Portfolio Manager feature, the fee structure is yet to be decided.

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Just dropping by again to leave the link to what other challenges need solving before the portfolio manager feature can be released.

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But where does this cash come from; i.e. who suffers? Darwinex? Maybe rebates can be linked to a lower actual volatility of the portfolio produced?

As a Darwinex provider I would be willing to accept lower performance fees for a minimum investment or minimum time commitment. Are these elements to be introduced or considered?

Thanks.

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I like that idea. I may help to dissuade those “I’ll run my high risk Darwin and try to make a few bucks before it blows up” merchants.

While being a buy&hold investor I like that Darwins can be sold in real time.
Many traders use to turn from Dr Jackyl to Mr Hyde and in that case I want to be able to get out as soon as possible.

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A minimum time commitment is never acceptable, look at Darwins like FSK if you bought it in the wrong moment.

Generally I’m against variable fees because investors could hold a losing position longer than they feel comfortable because of that.

A possibly acceptable cut of the fees could be made if

  • a Darwin is public longer than 2 years and exceeds its max. DD of last 2 years significantly (but also that could be misleading for investors)
  • performance fees for Darwin managers are taken from existing performance fees on an agreement with the trader so investors won’t pay more. If the trader did not agree, the manager is not paid for this position
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It would only be an option, not a requirement. If an investor did not want to commit for any time period, they need not. But if they were comfortable in making this decision, then they would get a lower fee.

It gives investors an additional option. Caveat emptor.

@StokesBay
It’s the worst option an investor could ever choose!

It must always be possible to sell the Darwin real time, at least if the performance of the Darwin is lower than the last high water mark when the trader would get nothing. It is never acceptable to force an investor held in a losing position against HWM or buy price.

What you suggest could be acceptable in a kind of reward system for long term investors if the Darwin is and stays profitable.

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Perhaps then investors could be rewarded for time invested in a Darwin without committing time. So they are free to leave whenever but if perhaps they stayed for 1 year then the performance fee drops to 15% going forward.

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But this should be within the gift of the Darwin provider; i.e. they set up these terms for their Darwin. Therefore not all providers need to offer these conditions.

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Darwins have the reward structure of hedge funds but can be managed like stocks.
Investors are free to buy and sell darwins or stocks when they want.
For investing patience is the key but it is up to investors, IMO we dont’ need a rule to trap investors.

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Is this incentive not already provided by the HWM?
The investor has the “incentive” of no further fees unless ongoing performance is realised.

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Hopefully with an increase to the quantity of quality traders here and or an increase in investor knowledge and skill and or an increase in the quality of invest-able attribute scores and other investor tools this problem will start to go away for some. Like @juancolonbo says:

We can all help with the first step (quantity of quality traders) by telling all our trader friends about Darwinex on social media and forums.

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So, I don’t understand something from the blog post:


Reason 2: A stable “profit potential / commissions” ratio

Imagine two investors with portfolios with similar trading volumes comprised of:

  • Investor A has invested €1,000 in a single DARWIN.
  • Investor B has invested €500 in two DARWINs that are completely uncorrelated.

With similar trading volumes, let’s assume that each portfolio pays €2 commissions per day. Despite the fact that they are paying the same commission, Investor A has a portfolio with VaR of 10% , while Investor B has a portfolio with monthly VaR of about 7%.

Due to the symmetric nature of the VaR measurement, a 10% VaR portfolio has a greater profit potential than that of a 7% VaR portfolio (if you are willing to assume greater risk, you should be expecting greater return). But as both investors have been charged the same execution commissions, Investor B who has invested in 2 DARWINs to reduce his risk, would have a worse potential profit/commission ratio. Again this might lead to an unwanted outcome where investors maintain under-diversified portfolios.


Why is “potential profit” a thing to even consider here? Shouldn’t we be comparing expected average profit instead? And all things being equal, if I’m understanding this correctly, investor B and investor A in this example should have the same average expectancy but investor B will have a better Sharpe ratio and lower VAR etc. I don’t hate these rebates, but I’m just pointing out some irony that investors get extra incentive to take (supposedly) less risk while making the same average profit. Also, could this incentive maybe push some investors (everybody loves rebates) to lower their standards and fit more Darwins in to their portfolio (thereby increasing their chance of having a time-bomb in it?)

How about a way to quickly calculate VAR of a portfolio and making it easy to add or remove leverage in tandem across all Darwins to get a portfolio to any desired portfolio VAR (with a cap of course)?

How about also a portfolio performance rebate similar to the Darwin operators for portfolio managers and investors?

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As the quality of traders improve, I am not sure it will be so much of a “trap”. I mean the Darwinia stays uninterrupted for 6 months… I am sure investors can learn from it too, not just traders… For every investor money lost to poor trading, how many more is lost to fear and impatience of the investor? We always seem to forget that the same exact things that affect traders affect investors. Entering during highs, jumping ship at the slightest downturn etc.

Look at CIS/HFD etc. even with the incredible trading, you still had investors jumping ship as soon as a - 3% happened. I even remember CIS talking about one of the investors always messaging him after a loss :rofl::rofl: If that is happening to the “stars” imagine everyone else. Yeah okay HFD went to a deeper drawdown later but it doesn’t justify exiting in a 5% DD and probably jumping in at a high again when/if it recovers.

My point is, at some point there has to be an even deeper level of dropping the pure exchange model to save investors from themselves…It has started with the model portfolio but I am sure it will get deeper with time.

The average VAR is 10%… It is not a trap to ask investors to stay 6 months minimum with a minimum 10% stop loss. So they automatically leave the Darwin if they lose 10% of the invested sum before the 6 months are up etc.

10% may be a tight stop loss but it is better than the panic selling at - 3% for sure! Throw in the lower performance fee suggested by others above for staying locked in and it makes some sense.

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What do you think DarwinIA pays each month?
10 k? Take your number and multiply it by 90 (or how many months Darwinex exists) and subtract it from the amount shown in the hall of fame. Take that number and multiply it by 4 and you know how much all investors made in 8 or 9 years. So I think they pay much less, at most 1k for each winning round per month (is less than 5k for all winners) per month.
IMO most traders winning prizes don’t make significant money with DarwinIA, so it is more an example for NOT holding a Darwin 3 month or longer.
More transparency onDarwinIA is suggested and appreciated, but not done.

Yes Darwinia is quite a bad investor.
It buys high (after a lucky month) and holds for six months.
For providers is very difficult to make money with Darwinia.
Very cheap marketing for Darwinex,
Many millions of virtual money but ~30k real fees paid every month.
To make money with darwins you have to buy low and hold for at least one year.

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I don’t agree with the one year period. You need a defined exit to sell without exceptions. I am really curious whether I will hold Darwins in my demo portfolio for a year or longer and whether it will make money in a year.