What is double leverage for a DARWIN portfolio?

Leverage is a form of borrowing in order to finance a trade, in other words, instead of carrying out a trade with your own funds, you do so with your own funds and a credit.

What is leverage and why do we offer it to our investor?

Leverage is a form of borrowing in order to finance a trade, in other words, instead of carrying out a trade with your own funds, you do so with your own funds and a credit.

Leverage is a double-edged sword because it allows you to multiply your profits, if the trade goes in your favour, but it also multiplies the losses when the opposite happens.

During 2017 we decided to reduce the DARWINs' monthly VaR from 20% to 10%, seeing as we came to the conclusion that a 20% VaR was too high for conservative investors who were looking for returns without excessive volatility.

Nevertheless, with the aim of not limiting the chances of users who were comfortable with a 20% VaR, we decided to allow a leverage x2 for investing in DARWINs.

How can you activate the leverage in your DARWINs Terminal?

Activating the investor leverage at Darwinex is really simple.

1. Option 'Double Leverage' from the 'Chart' section in the DARWINs Terminal.

In the first place, we need to go to the top left hand corner of the DARWINs Terminal where we will find the option to double the leverage (x2).

Double leverage

2. We update the new level of leverage x2.

message leverage

3. We now have the leverage activated!

Once activated, you will observe that, in the 'Graph' section of the DARWINs Terminal, a new section will appear called ''Available to invest'', where there will always be double (x2) the amount of capital in the ''Available'' section.

Available to invest

Case Study

We will explain, by means of an example, how to increase the volume ''available to invest'' so you can ''make the most'' of the leveraged capital which Darwinex offers you. To do so, it is important to have a profitable investment open in one of the DARWINs in your portfolio.

Let's look at this with an example:

1. You make an investment with leverage

Imagine you deposit 2,500 EUR in your DARWINs Terminal and you activate the leverage so you have 5,000 EUR available to invest.

2. You invest in a DARWIN that generates profits

Some time later, it turns out you have a DARWIN in your portfolio with an open P&L of +1,000 EUR.

3. You collect the profits and observe your available capital to invest

After going ahead of the sale of 100% of the investment, the system automatically retains 200 EUR in Performance Fees (20% of 1,000 EUR), but the available would change to be 6,600 EUR.

These 6,600 EUR result from multiplying by two the initial capial (2,500 EUR) and adding the profits gained (800 EUR).

(2.500 + 800 ) * 2 = 6.600 EUR

Tips

These are some of the most frequently asked questions by our users.

How can I deactivate the leverage?

Once the leverage has been activated, it canNOT be deactivated. Nevertheless, this does not have to affect your trading, because you do not have to use all the capital you have available to invest.

If we have an account of 5,000 EUR, with an available capital to invest of 10,000 EUR after having activated the leverage x2. Then, if we do not invest in DARWINs more than the available capital, in other word, 5,000 EUR, the monthly VaR for our portfolio will never be above 10%.

That said, with the leverage activated you will be able to invest with intermediary levels of levearge. For example, if you invest 7,000 EUR of the 10,000 available (5,000 x 1.4 = 7,000) you would be leveraged 1.4 times.

Is investing in a 10% VaR DARWIN leveraged x2 the same as investing in a 20% VaR?

It is not the same due to the reasons explained in the ''Case Study'' section. The reason behind the difference between the two is because the invested equity with leverage is made up of one part which is leveraged, that is fixed is regards to the initial investment, and the other part which varies in terms of the return.

In order to obtain the same results as having invested in a 20% VaR DARWIN, every so often we would need to close the investment in the leveraged DARWIN and then reinvest it in using the leveraged profits. The more often you do so, the more similar the 10% VaR DARWIN x2 will be to the 20% VaR DARWIN.

Can I lose all my money as a investor using leverage?

We have already seen that, if you use leverage x2, your profits and losses will be doubled. Therefore, a loss of 50% of your investor account would mean a loss of 100% of your Equity.

Nevertheless, you must take the following factors into account:

  • If you invest in various decorrelated DARWIN, you will have a diversification rebate which could well make the monthly VaR of your total portfolio be less than 10%. In other words, you could take on less risk investing 100% of the available capital to invest - leveraged - in a decorrelated portfolio of DARWINs, than investing 100% of your available capital in just one DARWIN without leverage.
  • By buying just one DARWIN, and investing 100% of the available capital to invest, the monthly VaR will not go above 20%.
  • As an investor, you can use Stop Loss to limit your portfolio's risk once you have reached a determined level of losses.

In this sense, the chances of losing 50% of your portfolio in a short space of time are really low.

Do you want to learn more?

If you want to learn more about the investor leverage, we recommend you watch the following video (you need to activate the subtitles).