What is double leverage for a DARWIN portfolio?

Leverage is a form of borrowing in order to finance a trade. 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 we offer it to investors

Leverage is a form of borrowing in order to finance a trade. 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 monthly VaR of DARWIN assets from 20% to 10%, as we came to the conclusion that a 20% VaR was too high for conservative investors who were looking for returns without excessive volatility.

At the same time, to not limit chances of users who were comfortable with a 20% VaR, we decided to allow a leverage x2 for investing in DARWINs.

How to activate double leverage for DARWIN portfolios

1. Choose 'Double Leverage' from the 'Chart' section

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. Udate to the new level of leverage

message leverage

3. Notice ''Available to invest'' in the portfolio header

Once activated, you will observe that a new section called ''Available to invest'' appears in the portfolio header, where there will always be double (x2) the amount of capital than in the ''Available'' section.

Available to invest

Case Study

Let's see how to increase the equity ''available to invest'' so you can 'make the most' of the leveraged capital which Darwinex offers you. To do so, you'll need to have a profitable investment open in one of the DARWINs in your portfolio.

1. Make an investment with leverage

Imagine you transfer 2,500 EUR to your portfolio and activate double leverage so you have 5,000 EUR available to invest.

2. Have a positive Open P&L with a DARWIN

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 salling 100% of the investment, the system automatically retains 200 EUR in Performance Fees (20% of 1,000 EUR). The amount "available to invest" changes to 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

FAQ

These are some of the most frequently asked questions by our users about double leverage for DARWIN portfolios.

How can I de-activate double leverage?

Once the leverage has been activated, it can NOT be deactivated. Nevertheless, this does not have to affect your investing as you don't have to use all the capital "available to invest".

With € 5,000 "available", you'll have € 10,000 "available to invest".If you don't invest more than the "available", it's like returning to 1x leverage.

With double leverage activated you'll be also able to invest with intermediary levels of leverage. For example, if you invest € 7,000 of the 10,000 "available to invest" you'd be leveraged 1.4 times.

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

It's not the same due to the reasons explained in the ''Case Study'' above.

In order to obtain the same results as investing in a 20% VaR DARWIN, every so often you'd 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 DARWINs.

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

If you use leverage x2, your profits and losses will be doubled. Therefore, a loss of 50% in your portfolio would mean a loss of 100% of your Equity.

Nevertheless, take the following factors into account:

  • If you invest in a basket of de-correlated DARWINs, you'll obtain a diversification benefit that'll probably push the VaR of your portfolio below 10%. In other words, youe equity at risk could be lower investing 100% of your "available to invest" in a de-correlated portfolio of DARWINs, than investing 100% of your "available" in just one DARWIN.
  • 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 orders to limit your portfolio's risk

In this sense, the chances of losing 50% of your invested capital in a short timeframe are low.