Screening the DARWIN Providers

By | February 7, 2016

Following the discussion in the comments section of this blog post, I decided to  put my investor cap on and write an article on screening DARWINs. For those who don’t know already, Darwinex is an FCA (UK) regulated broker and asset manager where traders can have their strategies packaged into an investable product called DARWIN ( Dynamic Asset and Risk Weighted Investment). Darwinex takes care of all the regulatory and logistical issues; you’re left with doing the trading, and just like if you were running a CTA or hedge-fund, you’re compensated via a percentage (20%) of the quarterly profits you make for your investors.

At the time of this writing, there are already 521 DARWINs listed, that investors from all over the world (excluding US and Japan) can invest in, starting from $200.

There are three major red flags that I have identified when browsing through the DARWIN providers list and I think potential investors should be aware of them.

Firstly, the number of strategies a provider has: there is no limit here; it can be anywhere from one to a ridiculous 24 strategies. I’ve already mentioned how professional traders have built a career and are known for one style of trading or investing. The same thing is true for other fields such as law, medicine or sports. In order to excel at something, one has to specialize. How then can a person who most probably is trading part-time be on top of not 2 or 3 strategies, but 24 ? I’ve heard the following argument: they are run on EAs (robots) and therefore the requirement for human involvement is greatly reduced. My answer to this: someone must monitor and constantly reevaluate them. How can you keep an eye on 24 EAs when hedge-funds have one or more persons working full time on strategies executed pretty much automatically too ? Furthermore, why don’t you select the very best 2-3 of those 10-20 or whatever and only list them ? Or is it that you don’t really know/trust what you’re doing and just throw out there as many DARWINs as possible, hoping to get lucky on at least one of them ?

Secondly, the amount of capital that the trader backs his strategies with. There is an important proviso though: low capital doesn’t necessarily mean bad and high capital doesn’t necessarily mean good.

If all I have is ten dollars and I risk it, I am much braver than when I risk a million, if I have another million salted away. – Jesse Livermore

Having said that, what rational person would invest any money in a provider that has for instance $50 a piece on 10 DARWINs ? The minimum amount you can open an account with at Darwinex is $500. But there’s no threshold for opening a sub-account with a fraction of that amount and listing a DARWIN. Consequently you can find many DARWINS that are backed with less than $100 of the provider’s capital (those cases where the ‘trader’s risk’ is <$100 and VaR is close to 100).

Thirdly, many strategies are run on absurdly high VaRs – 50%, 70% even 100%. In other words, those strategies can lose a significant percentage of capital or blow-up in any given month. This type of trading is more often than not a sign of an amateur.  Now, because DARWINs are standardized for 20% VaR, investors are protected from a sudden blow-up. Some DARWINs will even be profitable, despite the fact that the underlying strategy is losing money. Notwithstanding these facts, why would an investor back with capital such reckless trading ?

I believe that only after eliminating those DARWINs that display the above red flags (usually if a DARWIN has one red flag, it will have all three of them), can we continue the due diligence process by looking at the strategy, performance metrics and so on. All this in future articles.

15 thoughts on “Screening the DARWIN Providers

  1. beemak

    Those guys offering a lot of EAs with most run on measly amounts of ££ operate on the coin flipper principle: you have 12 random systems. first year, 6 will be profitable, 6 will lose money. second year, 3 of those 6 that were profitable in the first year, will be again profitable, out of sheer luck. And on an on. You don’t need trading expertise or anything, just flip enough coins to appear knowledgeable. Of course, the reality is more complex, but that’s their rationale. Nassim Taleb has written on this subject.

  2. Jamie

    The fact the darwins are just like black-boxes doesn’t help or inspire too much confidence. There is no presentation of the strategies, manual/ea, fundamental/technical used, no interaction between those who offer and those who buy the darwins. you’re supposed to invest just on past performance ? how do you know it will continue ?

    1. JLTrader Post author

      It’s the fault of the provider that they left the ‘user profile’ field empty instead of using it to give as many details as possible to investors. I don’t see a Darwin as a black box, but a risk standardization algorithm. It makes all strategies, irrespective of the risk they use, comparable on an equal footing – 20% VaR.

    1. JLTrader Post author

      From an investor point of view there are similarities, but from a trader’s perspective, the 2 platforms are worlds apart. I can’t imagine a serious/professional trader going to Zulu.

  3. James

    No one knows how the future will look like….firms with many PhDs and lots of intelligent people on the payroll have down years. So what you should be investing in is a team, a research process, not the known history (past performance). This is where the great majority of DARWINs fail, eg some have good past performance, but what’s behind it (an unknown person punting less than $100 on 20 strategies) would stop most people from investing even a 5th grader’s lunch money in it.

  4. Jim

    Vlad, i have spent the last 3 mths reading blogs, from elitetrader, to nick at forexsignals, and have come to the conclusion unfortunately that there is no point trying to convince the retail traders that this is just plain gambling what you see out there. The traders that supply the product to 10 000 `s of retail investors are giving them what they want, and I must say some systems out there even if they are doomed to failure look very good when they are working.
    Now to Darwinex, I am planning to run a system there as a trader, but i guarantee my humble 20 to 25 % pa ( should I be so lucky ), will get drowned out by thousands of other much better performing systems, that appeal to these investors. Now if I try target a more , ~ sophisticated investor ~ they won`t find me either as the performance metrics are a bit obscure, ( still trying to find open risk and open trades on Darwinex ). But we all have to make a start , I am giving it 5 years then real traders will be able to bubble to the top, right now it is not clear how this will go. One company i sees sells information on how to pick the Darwins, if I understood the webinar last night , tools for ranking Darwins are going to made available to those with affiliate networks, this creates a divide once again between those that are in the circle and those that are not. My loyalty lies with the investor, trying to better their lot. Every tool and free advice should be there for this person. Awesome blog Vlad, sorry for my rant , but I feel if we all get involved just maybe things may improve.

    1. JLTrader Post author

      A couple points:
      – the return graphs (both for strategy and DARWIN) are for equity, not balance. Moreover, the DARWIN graph is updated every 30 seconds, so it can be easily seen if there are open trades. You can also check the ‘Trading Journal’ tab, there’s more info there
      – don’t know exactly what extra tools will be made available to partners, but the idea is, people who’ve been with Darwinex and really understand the concept are the most suitable to spread the word to get good traders and educated investors. Kind of like what I’m doing here :)

  5. Jim

    Thanks Vlad for the pointers on the open trades, that is good what is on offer,

  6. Tim Edwards

    Doubt if this guy has the balls to let this post publish in its entirety, or at all, but here it goes…..

    Let me tell you what this guys site here is really about…. Shitting on anyone who provides Forex training or services then telling you to trust him and buy his…. LOL Here you have it. You could have a 100% win record over a decade and he will still say “You can’t count on that record, It’ll blow up any day.”

    Yes…NO ONE but HIM has the answers…Get it?

    This guy NEVER actually uses any of the products and services he reviews. He simply picks out cursory and supoerficial aspects like website design or marketing pitch and tells you its all bullshit.

    Ask yourself…”How come this guy NEVER actually USES the products he claims to review and THEN post his own results”? – I’ll tell you why… Because HIS GOAL is to make you doubt everyone else, then BUY HIS STUFF.

    To be fair, there ARE a lot of scams out there – and some ARE fairly obvious. However, I just would not trust THIS dude about a lot of his “judgments” because REAL reviewers actually USE the products they criticize.

    1. JLTrader Post author

      You’re obviously either a shill for Casey Stubbs or a moron. I actually use products and services I believe in – case in point, Darwinex, the topic of this article.

      Asking me to buy all the garbage out there in order to be entitled to criticize it is akin to asking me to enter the lion’s cage to prove it’s a dangerous animal.

  7. Alex

    I am on Darwinex as a trader and investor. I hope it will offer larger sums to manage for successful traders in foreseeable future.

    Unfortunately society is more and more dumb and not interested in smart solutions.

    Why big Var at some Darwins? They put only 2% of their capital for speculative runs to maximize leverage of the broker and use compounding interest without the risk of blowing up whole account.

  8. Pissaro

    Hey Vlad this is quite an interesting product and I’ll be watching this space. As Jamie mentioned above, the fact that investors can’t communicate with traders is a big drawback. You can’t appreciate if the trader is on the job or you’re investing in an unsupervised robot. Furthermore, without knowing in what you are investing exactly – granted with some scalping systems is obvious – you can’t really construct a diversified portfolio.

    1. JLTrader Post author

      Hey, fully agree with your comment. I believe Darwinex has huge potential, both for serious traders and investors. The operative word being ‘serious’. A trader who can’t open a free blog and leave a description of his trading approach and an email where to be contacted sends, at least in my opinion, the message that he’s not serious about getting/keeping investors.


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