Risk Adjustment Attribute

Risk Adjustment (Ra) measures on a scale of 0 to 10 how often our Risk Manager intervenes to protect investors from excessive risk in the trader’s strategy. 

The higher the score, the less often our Risk Manager has to intervene, hence:

  1. The more proportional the DARWIN’s behaviour vs. its underlying strategy, and
  2. The more likely the DARWIN will trade with a 10% VaR target risk.

Risk Adjustment Chart

Consistent Leverage is the component of risk management that assesses position level risktaking (the other being strategy level is Risk Stability).

Proving stable, strategy level risk, AND consistent position level leverage offers investors re-assurance - whoever achieves stable risk by leveraging every position towards a strategy wide risk appetite proves competent risk management.

The causal link is not reversible: yielding stable risk from inconsistent position leverage does NOT prove risk management skill conclusively: it could be that risk stayed stable for a while by chance - which is not what investors are after.

What’s in it?

The graph plots every position in a reference period, with:

  • D-Leverage on the vertical axis
  • Duration on the horizontal axis

Green bubbles represent positions that did not need to be ajusted by our risk manager since it was not deemed as an over-leveraged one when compared to its most recent trading history.

Red bubbles, on the contrary, reflect positions that needed to be ajusted by our risk manager since it considered to be an over-leveraged one when compared to its most recent trading history.

Finally, there´s a last thing that you need to know regarding the Ra attibute that´s not currently reflected in the chart regarding a leverage ceiling that Darwinex applies to all Darwins which are as follows:

  • If a position lasts less than 30 min, the maximum D-leverage that any Darwin will open will be 15.
  • If a position lasts between 30 min and 1 hour, the maximum D-leverage that any Darwin will open will be 12.5.
  • If a position lasts between 1 hour and 2 hours the maximum D-leverage that any Darwin will open will be 10.

Should you want to know more about how our risk manager works, do not hesitate to visit our blog (tag risk manager).

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