For investors who're comfortable with higher risk levels than DARWINs' default 6.5% monthly target VaR(95%), we offer portfolio leverage up to 3:1.
This means that with e.g. 5,000 own funds you'll be able to invest up to 15,000. Investing 15,000 in a 6.5% VaR DARWIN is the same as investing 5,000 in (a hypothetical) 19.5% VaR DARWIN.
How to activate leverage for 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 "Activate leverage".
2. Update to the new level of 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 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 and activate leverage so you have 15,000 EUR available to invest. You invest it all in a single DARWIN.
2. Have a positive Open P&L with a DARWIN
Some time later, you have and open P&L of +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" becomes 5,800. The amount "Available to invest" changes to 17,400 EUR.
(5.000 + 800 ) * 3 = 17,400 EUR
4. Reinvest your "Available to invest"
You can now invest 17,400 in the DARWIN instead of the initial 15,000.
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 investing 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".If you don't invest more than the "Available", it's like returning to 1x leverage.
With leverage activated you'll be also able to invest with intermediary levels of leverage. For example, if you invest € 10,000 of the 15,000 "available to invest" you'd be leveraged 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 leverage x3, 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 de-correlated DARWINs, you'll obtain a diversification benefit that'll can push 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 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 your "Available to invest", the monthly VaR will not go above 19.5%.
- 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.
A stop-out gets triggered in the moment when the losses of a real investment in a DARWIN reach 90% of the real (not the leveraged) investment. For example, if you invest €15,000 in a DARWIN in a leveraged portfolio, the real investment is €5,000 (the other 10,000 are borrowed from Darwinex), and when losses reach €4,500 (-0.30%), Darwinex immediately closes the investment in the DARWIN.