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Difference between a DARWIN and its underlying signal account

DARWINs replicate asset selection and market timing of the underlying signal account but trade size is determined independently of the trader.

 DARWIN vs. Signal Account

A DARWIN automatically replicates trades opened/closed by the trader in different assets within their signal account. However since Darwinex Zero standardises risk across DARWINs (3.25-6.5% target monthly VaR), our Risk Engine determines the size of the trades the DARWIN will open independently of the trader.

Because of this risk management overlay, the performance of the signal account and its associated DARWIN will differ — sometimes significantly.

Example DARWIN vs. Signal Account

In the chart below, during February to May 2017, the trader experienced several consecutive months of significant losses from which they had not yet recovered.

The VaR during these months fluctuated between 40% and 65% — far above the 3.25–6.5% monthly target enforced on DARWINs.

However, the return of the associated DARWIN shows a much more contained loss in the same period of time, our Risk Engine ensuring that the risk level taken on by the DARWIN has oscillated between 6.5% and 3.25% monthly VaR. This has enabled the DARWIN to recover from its drawdown much more easily.

While the Risk Engine manages and standardizes risk, it does not eliminate it. Investors should also seek to reduce portfolio risk through diversification across multiple DARWINs.

Do you want to learn more?

Watch the tutorial below to learn more about the differences between a DARWIN and its underlying trading strategy: