For investors who are comfortable with higher risk levels than DARWINs' default 6.5% monthly target VaR(95%), we offer the possibility to increase your portfolio leverage up to 3:1.
By default, investment portfolios are not leveraged. However, for investors who are comfortable with a higher risk, we offer the possibility to invest with a 3X leverage, that is 33.33% own funds and 66.66% debt.
Thus, in a portfolio with an equity of 5,000 euros, you could invest up to 15,000 euros. 15,000 invested in DARWINs with a monthly VaR(95%) of 6.5% is equivalent to 5,000 invested with a monthly VaR(95%) of 19.5%.
Once activated, the leverage cannot be deactivated. Please do not activate it if you are not completely clear on how it works.
For your information, investing 15,000 USD in a 6.5% VaR DARWIN is the same as investing 5,000 USD in (an hypothetical) 19.5% VaR DARWIN.
How can you activate 3:1 leverage in your DARWIN portfolios
1. Click on 'Activate Leverage' from the 'Chart' section
Go to the top left-hand corner of the "Chart section" in your portfolio and click on "Activate leverage".
2. Update to the new level of leverage (3:1)
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 triple (x3) the amount of capital than in the ''Available'' section.
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 5,000 EUR to your portfolio, activate leverage so you have 15,000 EUR available to invest, and invest it all in a single DARWIN.
2. Have a positive Open P&L with a DARWIN
A few days later, you have an open P&L that reflects +1,000 EUR.
3. You collect the profits and observe your available capital to invest
After selling 100% of the investment, the system automatically retains 200 EUR in Performance Fees (20% of 1,000 EUR).
The amount "Available" now reflects 5,800 EUR. and the amount "Available to invest" changes from 15,000 EUR to 17,400 EUR.
(5.000 + 800 ) * 3 = 17,400 EUR
4. Reinvest your "Available to invest"
You can now invest 17,400 EUR in the DARWIN instead of the initial 15,000 EUR.
These are some of the most frequently asked questions by our users about leveraged DARWIN portfolios.
How are management fees applied in leveraged portfolios?
Management fees apply to the whole of the invested amount, including the leveraged part (and including also open PnL).
How can I de-activate leverage?
Once the leverage has been activated, it can NOT be deactivated.
Nevertheless, this does not have to affect your investment as you don't have to use all the capital "Available to invest".
With € 5,000 "Available", you'll have € 15,000 "Available to invest" m, which means that if you don't invest more than the "Available", it'd would be like investing with no leverage.
Once activated, you'll be also able to invest with levels of leverage ranging from 1:1 to 3:1.
For example, let's say that you invest € 10,000 of the 15,000 "available to invest". In this case, your leverage would be 2:1.
Is investing in a 6.5% VaR DARWINs leveraged x3 the same as investing in a 19.5% VaR DARWINs?
It's not exactly the same due to the reasons explained in the ''Case Study'' above.
In order to obtain the same results as investing in a 19.5% 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 6.5% VaR DARWIN x3 will be to a 19.5% VaR DARWIN.
Can I lose all my money using leverage?
If you use X3 leverage, your profits and losses will be tripled.
Therefore, a loss of 33.33% 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 uncorrelated DARWINs, you'll obtain a diversification benefit that might bring the VaR of your portfolio below 6.5%. In other words, your equity at risk could be lower investing 100% of your "Available to invest" in an uncorrelated portfolio of DARWINs, than investing 100% of your "Available" in just one DARWIN.
- By investing all your capital in one DARWIN, the monthly VaR will not go above 19.5%.
- As an investor, you can use Stop Loss orders to limit your portfolio's risk.
A stop-out will be triggered the moment the losses in an investment in a DARWIN reach 90% of the real (not the leveraged) investment.
For example, if you decide to invest €15,000 in a DARWIN in a leveraged portfolio, the real investment is €5,000 (the other 10,000 are borrowed from Darwinex), therefore should losses reach €4,500 (90% of your investment), Darwinex will immediately close the investment in the DARWIN.