The conditional orders offer an additional control over trading in DARWINs.
They are called conditional orders because their execution depends upon the fulfillment of a set condition, determined by the user. At Darwinex, currently, all conditional orders are subject to a DARWIN's quote price reaching a certain value in the future.
2. DARWIN quote price
The DARWIN quote price is the trigger which makes the conditional orders be executed, so it is important to understand how the quote price is generated in order to make good use of it when placing these types of orders.
Put simply, the DARWIN quote price reflects the returns generated by a DARWIN since its creation. All DARWINs are created with a quote price of 100, so a quote price of 120, for example, would mean that a DARWIN has earned 20% since its creation.
From a more technical or sophisticated standpoint, the quote price shows live the money that an investor would have if they had invested in the DARWIN from an account in the same base currency as the underlying strategy, with an initial investment of 100, and with perfect execution between trader and investor (this supposes that the investor obtains the same execution prices in the assets in which the trader operates).
Its value gets updated every 30 second, and takes into account open and closed trades replicated for this hypothetical investor, including commissions, spreads and swaps.
In this way, the concept of 'quote price' for a DARWIN is different to the concept of quote price for an asset in an organised market. In an organised market, the quote price is determined by the supply and demand of all the agents who at that precise moment want to open or close a position on this asset.
This difference is key to understanding why conditional orders for DARWINs and for assets in organised markets work differently.
3. FIFO method for trading in DARWINs
Before explaining how conditional orders work, it is worthwhile remembering that the platform that manages DARWINs follows the FIFO method (first in, first out). This means that if an investor makes two investments on different dates for the same DARWIN, when that investor wishes to close part of the investment, first all of the first of the two investments will be closed.
This process is of special importance in regards to conditional orders, as we will see later on.
You will find attached a brief example of how the FIFO method works.
4. Types of conditional orders available
4.1 Buy Limit Order
The investor can create a buy order conditioned on the quote price falling to a certain value (Buy Limit).
Buy Limit Example: if a DARWIN is currently quoted at 120, the investor can create Buy Limit for 1000€ to be invested in the DARWIN if its quote price falls to 105, for example. The order will be saved as pending and when the DARWIN's quote price reaches 105 (or lower), a buy order will be sent to the market for 1000€ for that DARWIN.
- The quote price for the Buy Limit must be set a minimum of 0.2% below the DARWIN quote price at the time of creating the order.
- If there are not enough funds available in the account when the DARWIN quote price matches the Buy Limit quote price, the order will be completely rejected.
- If by executing the conditional order the risk limits configured by the investor for their portfolio are exceeded, the order will be rejected to avoid the investor incurring a risk superior to that which they have predetermined.
When creating a Buy Limit order, the user can add a Stop Loss and Take Profit for the amount established in the Buy Limit. The Take Profit and Stop Loss will only be activated if the Buy Limit order is actually executed.
Viewing the created Buy Limits:
In the Portfolio, on the table which shows all the DARWINs which have been invested in, a new tab has been added which shows the ‘Pending Orders’. By clicking on it, a list will appear with all the Buy Limit orders which are pending execution. Each of these orders can be edited or deleted on an individual basis within this section.
4.2 Stop Loss and Take Profit orders for open investments in DARWINs
The new conditional orders also allow you to add a Stop Loss and/or a Take Profit on investments which have already been opened.
Stop Loss Example: Let’s imagine that we have invested in a DARWIN that is quoted at 120. We could set up a Stop Loss to close the investment if the quote price were to fall to 115. In this way, we could limit beforehand the losses that we are prepared to sustain for this investment.
Take Profit Example: This is similar to the Stop Loss, but the other way around. Let’s imagine that we have invested in a DARWIN that is quoted at 120. We could set up a Take Profit to close the investment if the quote price were to reach 125. In this way, the order would be closed when the DARWIN reaches a level of profits predetermined by the investor in the Take Profit.
- The SL and TP must be created with a difference of at least 0.2% in regards to the DARWIN quote price at the time of creating the TP or SL.
- In accordance with the FIFO method, the SL and TP will always close the oldest investments first.
- You can set up as many SL and TP as you like, as long as they are for a value less that the total amount of the investment.
The SL and TP refer to the initial investment value, NOT the available equity at the time of execution. In other words, if an investment is made of 1000€ and a SL is set up for 1000€ in that investment, the SL will close the whole investment, independently of any profits from that investment at the time of execution.
If there are any outstanding conditional orders on a DARWIN, these will be automatically deleted when the investor or another conditional order completely closes the investment in that DARWIN.
Viewing the SL and TP:
There are two ways to view the SL and TP associated to an investment in a DARWIN:
1. In the top right-hand corner of the ‘Open Assets’ tab (within the investor portfolio), you can activate the option of ‘Show orders’ to see all the SL and TP set up on open investments.
2. If a SL or TP has already been set up on an existing DARWIN, on the right-hand side of the row for that DARWIN, you will be able to see the number of TP and SL there are. When you click on these numbers, all the pending orders will appear in a drop-down, where they can be edited.
To make it easier to follow the SL and TP, the numbers mentioned in point 2 change to red or green when the quote price is close (+/- 1%) to reaching one of the TP o SL which have been set up for that DARWIN.
5. Quote price variation for conditional orders
When a conditional order is placed for a determined quote price, the quote price at which the order gets executed in the end does not necessarily have to match the quote price established in the order, as in certain cases there can be differences.
‘Quote Price Variation’ is the term used for the difference between the quote price at which you want to Buy / Sell the DARWIN, and the quote price at which the DARWIN was actually bought / sold for.
As we explained before, the DARWIN quote price reflects the equity of a hypothetical account that is calculated based on the price of all the underlying assets for which the DARWIN has a trade open.
The market conditions when a quote price is reached which triggers a conditional order can vary. In cases when a conditional order is triggered during moments of low market volatility, the Quote Price Variation ought to be small (this applies to the majority of cases).
Notwithstanding, if the moment when a conditional order is executed coincides with a situation of high volatility where the underlying assets are moving a lot, a larger variation could arise between the desired quote price (the quote price established for the conditional order) and the quote price that was actually executed.
Statistically, the Quote Price Variation tends to have a favourable bias for investors in the case of TP and Buy Limit, whilst it tends to be unfavourably biased in the case of SL.
Every time a conditional order is executed, the investor will receive an alert via email containing the details of the execution and any necessary information to have under control the positions open on their portfolio.
7. DARWIN quote price graph
A Japanese-candles graph will shortly be added to the Darwinex terminal with the aim of adding a higher degree of transparency to the maximum and minimum quote price levels for each DARWIN. This will make it easier to interpret the execution details for conditional orders.
8. Precautions during market closure
8.1 DARWINs market closure
Currently, between 20:55 GMT and 21:10 GMT (an hour later during winter time), the platforms carries out the adjustments for swaps and dividends. As a precautionary measure, trading on DARWINs is not permitted during this time.
If a DARWIN’s quote price reaches a level which triggers a conditional order during the time period, the platform will execute the order until the restriction on trading has been lifted. This could lead to differences due to Quote Price Variation.
8.2 Market closure for a DARWIN’s underlying assets
On certain occasions, some underlying assets, such as the stock indices or commodities, like XAUUSD, are closed for some hours and cannot be traded on, (due to trading hours, bank holidays etc.).
This could mean that a DARWIN has trades open for these underlying assets as well as trades open for other assets which are open for trading. In these cases, the DARWIN’s quote price will move, but the conditional orders will have a slightly different behaviour from what normally happens.
If we have a Buy Limit and the quote price matches the desired value in this time period, a buy order will be sent, subtracting from the investor the available funds, but the order will not be fully executed until trading has reopened for the underlying asset which was closed.
If we have a SL or TP, when the quote price matches the trigger for the conditional order, the investor will see their investment as closed, but the capital will not appear as available until the underlying asset’s market reopens.
8.3 Conditional orders on DARWINs temporally blocked by Darwinex
There may arise occasions whereby Darwinex could have to block trading on a certain DARWIN (due to excessive investor divergence, execution failures on the platform, etc.). In these instances, the DARWIN quote price could continue to vary, and therefore, the quote price could be reached to trigger a conditional order. However, in these exceptional circumstances, the conditional orders would be rejected by the platform. The user would receive a notification via email that the said order could not be executed.
9. Conditional Orders History
The investor platform has a new information section in the history of trades carried out for DARWINs. From now on, the user can check what type of order was executed to buy or sell a certain DARWIN (market order, Buy Limit, SL or TP)
Brief example about the FIFO process
Here is an example to help understand the FIFO method for SL and TP:
Step 1: an investor buys $10000 in a DARWIN at 120.
Step 2: some time later, the investor places a Buy Limit of an additional $10000 when the quote price reaches 110. Likewise, they place a SL at 100 and a TP at 120
Step 3: the Buy Limit is executed and the investor now has:
Invested $20000, SL of $10000 at 100, and TP of $10000 at 120.
Step 4: The user, manually, creates a new SL at 105 for $15000 of the investment which they had. They sell $10000 of the investment made in step 1 and $5000 of the investment executed by the Buy Limit.
In total the investor will have:
Invested: $5000, SL of $5000 at 100, TP of $5000 at 120 TP of $5000 at 130.
As you can see, the values in red are now $5000 when before they were $10000, due to the fact that now the investment is for a total amount of $5000, and as mentioned previously there cannot be a SL or TP for an amount higher that what is invested in the DARWIN. In this example, you can also see that there is a TP which never got executed in the end.
We allow there to be various TP or SL for the same amount as what has been invested in the DARWIN, as this means the user can track all the orders which can been created that DARWIN.