Darwinex Review (Our Opinion)
Darwinex is an innovative social trading and investment platform which connects independent traders with potential retail investors (like you and I). This review focuses on both these user groups, though is maybe slightly more written from an investor point of view.
Just like any of our other reviews, this one is directly based on our experience as an investor with a real money account.
Since most of you reading this will be familiar with other social or copy trading networks, I like to first introduce the concept of a “DARWIN” before continuing this review (because it’s important to know the difference between them!).
Most other platforms directly list the available traders or strategies you can follow. And when you copy them, their trades are copied in real-time in your account, based on the size limit you decide.
Darwinex on the other hand lists traders and their strategies as DARWINS. They start with a value of 100 and this value changes based on the performance of the underlying strategy. As an investor you buy or sell these DARWINS in the same way as you would buy or sell stocks and shares.
I.e. while the concept (“copy the best traders”) is the same, the approach is different.
Signing up with Darwinex?
Darwinex launched in September 2014 and only gradually allowed new users (by invite only) onto their platform during their beta phase. We joined early and obviously for any new startup company it’s a good approach to grow gradually.
Since the second part of 2015 Darwinex is fully open for business to both new traders and new investors. When you sign up, you have to select whether you want to be a trader or whether you want to be investor.
Your Darwinex account can be opened and funded in 3 different currencies, EUR, USD and GBP. The minimum deposit requirement for both investors and traders is 500 in your chosen base currency. Your money is held in a segregated client account (with Barclays Bank UK). Being FCA (UK) regulated it also means you enjoy FSCS (UK) capital protection up to GBP 50,000 in case Darwinex would disappear.
You also have access to a fully functioning demo once you register.
In our own experience with Darwinex, the sign up process was fairly straightforward. The choice of currencies is reasonable too, though as investor, bear in mind that most DARWINS are trading in USD. This means for example that if you open your investment account in GBP, the value of those DARWINS in your account will also fluctuate with the value of the overall GBPUSD exchange rate.
Self Trading with Darwinex?
We have not actively traded ourselves using the Darwinex platform. However as a broker there’re certainly some positive selling points:
- 100 % STP execution (i.e. they don’t bet against you)
- very competitive spreads (less than 1 pip on most majors)
- FIX API trading and VPS available (to run your own scripts)
- personalised diagnostics and statistics
The actual trade execution platform is MT4, which is almost standard with most brokers.
However the key appeal for traders to join Darwinex or any other social trading platform, is to earn extra money when other people copy them (or in this case invest in them).
Darwinex pays traders a 20% performance fee on investor profits. These success-fees are computed quarterly and based on the ‘high-watermark’ principle. I.e. you only get paid on the actual incremental profits you make for investors.
Proprietary Darwinex algorithms grade your trading performance from 0-10 based on 6 factors: Experience, Risk Management, Consistency, Timing, Performance and Scalability. It’s these 6 grades combined which will also give you a DARWIN investor appeal (DARWINia) score.
Only traders (DARWINS) which are deemed investable will be made available to the investors. In addition, Darwinex invests their own money in the top 22 traders each month (i.e. those with the highest DARWINia score).
Because investors only invest in you as DARWINS, none of your historic or open trades are shared with them or any other members of the public. I.e. these remain your intellectual property.
Because Darwinex is still fairly young with a small investor base, the initial earnings potential will be significantly smaller compared to the more established social trading platforms like ZuluTrade and eToro. It will also take some time before you build up your DARWINia score (although you can import your live MT4 track record from another broker to a Darwinex Live MT4 Account).
However if you become one of the top traders (only you will know how good you are) there’s certainly potential down the line. Especially since Darwinex as a company and the Darwinia Index both automatically invest in the top traders as well.
Investing with Darwinex?
As mentioned in the introduction, as an investor on Darwinex, you sell and buy DARWINS. The minimum you have to invest in a DARWIN is 200 of your account currency. The value of your portfolio complete depends on the performance of the underlying DARWINS you invest in.
All the DARWINS you can invest in (currently over 600) are listed in a table (see image) which you can rank and refine on a number of attributes. These include universally used ones such as cumulative return, drawdown and number of investors, as well as unique Darwinex indicators scored from 0 to 10 by their propriety algorithm. These are experience, consistency, risk management, timing, scalability and performance, while the and D-Score is a summary of all 6.
While most investors will select their DARWINS based solely by looking at these key indicators, you can drill down on each DARWIN to get a much more detailed report of the strategy based on past performance. For most people (including myself initially) this strategy report will look a bit too overwhelming and complex (see image), though Darwinex provides very useful and detailed guides on how to interpret all of that data.
Darwinex mention that many years of effort has gone into developing and optimising their proprietary indicators. Our impression from looking at the guides and listening to the webinars is that the logic behind them is very interesting and well thought through. They go a step further than just looking at risk/reward or performance and drawdown. E.g. the Timing indicator looks through the historical trades and checks how close the trader was in opening and closing each trade to the optimum time where the most profit would have been made on the trade … and it then compares this to other strategies.
Please note though that Darwinex does not share the actual historical trades (i.e. trade history) or the open trades of the DARWINS. They do this to protect the intellectual property of the traders. However personally we really find that information important and would very much prefer it to be shared. Most traders go eventually bust when they start employing a Martingale type of strategy, and it’s important that you avoid investing in those type of traders. However without access to open trades you may start copying a trader which is already heavily invested in one direction. Yes, this type of trading should have a negative impact on the indicators, though the impact will be lagging.
As an investor, you also pay a success fee of 20% on the profits made per DARWIN on a quarterly basis. So losses are compensated within a DARWIN, but not between them across your portfolio.
In March 2016 Darwinex also launched the Darwinia Index. The Index invests in the top 40 or 50 systems with the highest D-score. Going forward they’re also looking to add additional algorithms which will pick out the worst traders and make the opposite trades (a tactic used by some brokers as well to make money).
The Index was closed again though on April 28th and Darwinex is making some improvements before they re-open it.
We like the concept of the Darwinia Index, and it will appeal to those investors who don’t fancy picking their own DARWINS. We invested when the Index was launched and after one month and when it was closed the profit was 6%. However, the divergence (i.e. slippage) was a a fairly hefty -5%, which means overall 1% was made in 7 weeks. Too early though to make a full judgement on this but clearly the divergence is an issue Darwinex may need to address before they re-open the Index. Like any other reviews we update this review regularly.
Risk and money management features
Once you’ve chosen a DARWIN to invest in the only thing you have to do is to select how much of your funds you want to allocate (minimum 200) (see image). You cannot add any capital protection or stops. However, Darwinex’s risk algorithm manages every DARWIN to a risk equivalent to the risk of an individual stock in an index – 20% monthly VaR (Value at Risk). I.e. the risk is managed so you cannot lose your full allocation in one go – only part of it is at risk at any time.
(Please note that in the beta phase Darwinex did allow you to invest in each DARWIN in low, medium or high risk mode, but this was discontinued. The current level is actually the high risk one, because it seems most investors were selecting that one anyway.)
The other side of this managed risk approach means though that you cannot automatically increase your risk using leverage. So you cannot try or expect to double your investment in one or a few months time (i.e. gamble).
You can view the performance of your DARWIN investments from your dashboard (see image). This includes open P&L per DARWIN, investment at risk and divergence, which indicates how your allocation performed against the performance of the actual DARWIN you replicate (most people know this as slippage). You can also completely or partially sell them at any time from the dashboard.
Mobile & Social
Darwinex is also available as a mobile Android and iOS app. The app allows you to check your performance and buy and sell DARWINS at any time while on the go.
While some social trading platforms focus on social interactions allowing you to interact with other traders, Darwinex is fully closed in that respect. I.e. you cannot communicate with other traders. They in turn also cannot broadcast to you.
Because Darwinex is very new and unique we’ve had to contact support a few times so far. They’ve always been fast to reply and very knowledgeable, both by phone and email.
So how have we performed so far?
Most of you will only be interested in this part though I hope the other information so far was useful too.
After almost 1 year our portfolio is down -6.55%. So only a small loss. We invested during this period in about 6 different DARWINS, but only committed less than half of our funds (we only just committed the other half to the Darwinia Index).
So arguably our losses would have been higher if we invested all our funds. On an individual basis we’re down on each DARWIN as well.
Now obviously this all doesn’t sound great, but we have to take into account here that most of the DARWINS we invested in are in USD. Because our account is in GBP we therefore also took a 10% hit on the exchange rate. Taking this into account would still roughly put us slightly in negative, but less than the 6%.
We also need to consider here that our investment began very early when Darwinex didn’t have as many DARWINS yet to invest in. As always we keep this review updated with new performance figures at regular intervals.
Darwinex review Pros:
- Simple concept – Buy & Sell DARWINS
- Low spreads
- Traders only compensated for success
- Risk automatically limited
- Free demo available
- Mobile apps
- Comprehensive guides and good support
- FSCS (UK) capital protection
Darwinex review Cons:
- Open traders are not shared – you rely solely on Darwinex’ proprietary indicators
- Still relatively new platform – earnings potential still unconfirmed
- Divergence/slippage can be significant
- Not totally free – but you only pay on profits made
While the concept of Darwinex is the same as with other social trading platforms (“benefit from the performance of the best traders”) the way they’ve implemented it is very different. The concept of DARWINS will certainly appeal to novice investors since little Forex knowledge is required. The fact that the risk is also automatically limited so investors don’t lose their full account balance will add to the appeal and longevity of the service.
The fact that the open and historic trades are not shared is in our opinion a negative point. Especially since, based on our experience, it’s the main indicator which can be used to detect poor trading behaviour ourselves. You have to fully trust the proprietary indicators Darwinex introduces. Hence the service can be mainly judged based on your actual results, and on those, the jury is still out. I.e. we neither have a positive or negative opinion so far.
As a trader though, the low spreads offered can be appealing and down the line top performing traders may have some decent earning potential. Darwinex is also recognised as one of the hottest Fintech businesses and the introduction of the Darwinia Index shows the company is forward thinking and looking to help shape this exciting growing industry.
As with any other reviews, we will update this one if new features get released or our opinion changes. Of course feel free to share your opinion with us to?
Last updated: May 6, 2016
Please note that this review is written based on our experience with real money Darwinex account. The information here is for informational purposes only and not investment advice. Trading forex with leverage, including buying and selling DARWINS, can be very risky and result in the loss of your full investment. You should never invest money you cannot afford to lose. Always consult an independent financial advisor if you’re unsure whether this type of investing is the right thing for you.