Our risk management can cause noticeable differences between a DARWIN's return and that of its underlying strategy
It works on two levels.
Every time a trader sends an order to the market, and depending on the market conditions at that moment in time, the algorithm calculates the size to be opened for the investors in order to meet the objective risk level that Darwinex guarantees investors.
While the trader's position remains open in the market, the algorithm carries out a second level of risk adjustment ensuring that the position does not go above the maximum leverage. In order to do so, the Risk Manager takes into account the market conditions throughout the positions lifespan, as well as its duration. This means that the risk manager can act at any moment in time to partially close the position so that the DARWIN's target risk level is always a 10% monthly VaR.
Example DARWIN vs. Strategy
On this strategy's return graph we can see that, during the months of February to May in 2017, the trader had a few months of important consecutive losses from which they have still not recovered. The VaR during these months fluctuated between 40% and 65%.
However, the previous strategy's associated DARWIN's return shows a much more contained loss in the same period of time, due Darwinex's Risk Manager. This has enabled the DARWIN to recover much more easily. The risk level taken on by the DARWIN has always been the same: a 10% monthly VaR.
Tip - The algorithm manages and standardises the risk but doesn't take it away. The investor ought to be the one who mininises their portfolio' risk through diversification.
Do you want to learn more?
If you want to learn more in depth about the differences between DARWIN and the strategy it replicates, we explain everything in this webinar recording.