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The Efficient-Market Hypothesis - (How) can DARWINs beat the Market?

US economy is doped - for sure. But what we know with a very high certainty is that the whole world’s economy will still grow for decades. This is due to the fact that billions of “poor” people want to reach the prosperity we already have - and they will. But even we are not in the zenith. So just replace “S&P 500” by “MSCI World” etc. and compare it to the “buy/sell & hold chances” in the FX universe. This way the key message stays the same.

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The main inefficiency of indexes is that they are growing, neutral markets like currencies and commodities have momentum and mean reverting inefficiencies that we try to exploit with our strategies.
Oil, Gold, or eurusd are not random walks, randomness is very high but not 100%.

These are the benchmarks for every trader:

  1. beat the 0
  2. beat spx500
  3. beat Buffett
  4. beat Winton

Luckily we dont’ heve to beat also Simons and his Medallion fund.:bow:

Even a lower return than SPX or BRK can be welcome if the DD is much lower or the behaviour is uncorrelated to indexes.

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Absolutely, have a look at Bridgewater Pure Alpha Fund by Ray Dalio (mentioned in my tractat above incl. performance chart).

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Stop bothering, just invest in Bettina :joy::joy::joy::joy: :

Thank you @BenHardy for this very insightful and relevant discussion :+1:
Interesting! :slight_smile:


This actually is a very interesting article. I had to utilize google translation though ;-).
Regarding the comparison “Spanish fund managers vs. DARWIN traders”: We have to consider that the latter mostly use leverage within their DARWINs and many of said respective traders also utilize very risky strategies (like grid, averaging, no stop loss despite leverage etc.) so that a lot of such strategies can bring nice performances for any given year by coincidence. Furthermore the fees an investor has to pay for investment funds are much higher. So I think said comparison isn’t 100 % fair but nevertheless delivers a very interesting statistic!

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IMO the point is not leverage but lenght of trackrecord.

You can create a filter:
350 days in darwinex : 1100 darwins
and 1y return > 0 : 350 darwins

Leverage doesnt’ turn losers to winners.

I personally think that especially the ability to use “gambler strategies” within DARWINs leads to the result that for any given year a bigger percentage of DARWINs show nice results (compared to said Spanish managers). It’s really that simple: If you are allowed to risk the total account, it is easier to gain nice profits within any given year by chance compared to a “monkey” throwing darts but at least using a solid risk management (without having an edge of course). So in terms of reward to risk, said managers should still be better I guess (if the fees wouldn’t be that high).
Regarding leverage: Yes, it can’t turn losers into winners. But it can
a) allow you to recover from losers via martingale for many steps
b) increase profits (even though higher drawdowns may occur).
Finally I want to add that of course there are really talented traders @ Darwinex. However their number hopefully will increase within the next 5 years so that this platform can attract more investors, especially those who have bigger capital…

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The number of taleted traders increases but also the number of useless darwins increases.
Bigger needle but also bigger haystack.
Despite the equity rules for darwinia, the haystack grows by 40 darwins per week
Talented traders could be already enough if they were visible.
Hall of Fame works but it isn’t free from bad stuff and it is very lagging, it is a very slow process.

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I’d be more than happy if “Hall of Fame” could be part of the solution regarding the general issue that you have to find said needle in the haystack. But when clicking through said ranking step by step you’ll see that even when starting @ #1, most traders have already failed or are in the process of doing so. I think that “Hall of Fame” is not immune to lucky monkeys. I meanwhile only trust strategies that are successfully backtested on several assets over minimum 10 years (of course with real ticks, commission, swaps, slippage etc.) with a lot of out of sample validation. Furthermore the expectancy measured in Pips must be big enough to ensure scalability and trades within rollover etc. must not be included. The problem is that I can’t backtest each and every DARWIN since I’d need the respective EAs for that. Thus meanwhile I only trust my own strategies or those from traders that I know personally. Apart from that a track record over at least 10 years with more than 10k “unique trades” may also attract my attention… :wink:

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EMH cartoon :slight_smile: … :