What's the Risk Manager?

The Darwinex risk manager is an algorithm that manages DARWIN risk independently of the risk undertaken by the trader.

What is it?

The Darwinex risk manager is an algorithm that manages DARWIN risk independently of the risk undertaken by the trader.

1. Fulfill the FCA regulations

We fulfill our obligations as an Asset Manager regulated by the FCA (UK) providing our investors with an asset whose risk they know beforehand.

2. Standardise the risk

All DARWINs have a similar statistical risk level. All DARWINs are listed with a monthly 5-10% VaR, equivalent to that of an average share.

3. Add an extra layer of security to our investors

The risk manager adds an extra layer of security protecting our investors' capital from any erratic or irrational behaviour by the trader in terms of their risk management.

4. Provide our traders with legal coverage to be able to get paid for profits

Traders at Darwinex have legal coverage to be able to get paid a success fee of 20% of the profits generated for their investors.

The risk manager is the mechanism which, positioned between the underlying strategy and the DARWIN, regulates the DARWIN's risk.

Strategy transformation

How does it work?

In order to evaluate the underlying strategy's value at risk (VaR), the algorithm uses the last 45 days of a trader's open trades as a reference period.

For purposes of the investors’ target leverage formula, the maximum VaR in the last 6 months is used.

This maximum value establishes the 10% target VaR, and the ratio between the current VaR value with respect to that maximum establishes the current target VaR, which is a minimum of 5%.

The risk manager works on two levels.

First level

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 target risk level that Darwinex guarantees investors.

Second level

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. This additional control measure does not allow investors’ D-Leverage to exceed in any case the 15-12.5-10 threshold for 15 min-30 min-1 hour positions. This restriction mainly affects short-term DARWINs, or DARWINs that use short-term leverage peaks.

At Darwinex’s discretion, we will also be able to increase these levels to 25-20-15 for DARWINs that prove their monetary discipline.

Examples

A strategy currently has a 20% VaR and in the last 6 months its maximum VaR was 30%. The DARWIN’s current target VaR will be 20/30*10%= 6.66%.

A strategy currently has a 5% VaR and in the last 6 months its maximum VaR was 15%. The DARWIN’s current target VaR would be 5/15*10%=3.33%<5% and as a consequence the current target VaR will be 5%.

The difference between a strategy's results and those of its associated DARWIN are exclusively down to the risk manager.

Tip

  • The algorithm manages and standardises the risk but doesn't take it away. The investor ought to be the one who minimizes their DARWIN portfolio risk through diversification.

Past changes to the Risk Manager