What is Darwinex?
Darwinex launched in September 2014 as a new and innovative social/copy trading service. Actually Dawinex themselves doesn’t use those terms as they see themselves as an “investment manager”. While in essence they offer the same concept as trade copying and social trading networks, i.e. the ability to profit from other successful Forex traders by copying what they do, there are some very key differences in their approach.
Firstly and most importantly, instead of directly following and copying another trader (or strategy), you buy a DARWIN. This stands for stands for Dynamic Asset and Risk Weighted Investment, and is in essence a financial asset based on a trader (or automated strategy) trading at Darwinex. As an investor you can buy and sell DARWINs just like they you would trade stocks. Each DARWIN has a certain value when you buy it, and depending on the performance of the trader who provides the DARWIN, the value will go up or down. Behind the scenes, each time the DARWIN’s trader places a trade, Darwinex opens or closes a trade in that asset on behalf of investors. Each DARWIN starts from 100 at inception and the price updates every 30 seconds based on the performance.
So in essence not that different from directly copying someone else’s trades, though instead of the trades being copied in your account, the value of the DARWINs goes up or down and you can sell them at any stage to stop following or investing in the trader. In addition, if traders or strategies take abnormally high risk in any given trade (at open or after), Darwinex’s algorithms protect the DARWIN investor with partial or total trade closes. Darwinex also automatically controls leverage for all investors trades and if a DARWIN’s trades exceed a leverage threshold for the investor, they will either open the trade for the investor with less leverage, or partially close trades, or both.
It’s worth mentioning that when Darwinex initially started you investors could buy DARWINs in 3 types of risk flavours (low, medium, high) with risk ranging from a sovereign bond (low) to a volatile S&P500 stock (high risk). At each risk level Darwinex was replicating the trades with different leverage. Because most investors would chose the higher risk level (to give them the most leverage) Darwinex removed the different levels from their beta release in Q3 2015.
Darwinex also rates strategies with algorithms which grade from 0 (bad) to 10 (good) on 6 investable attributes. The algorithms reward traders who manage risk predictably and penalise those taking unexpected high risk. Investors can view all these ratings and use them to make investment decisions (i.e. select DARWINs) based on their own risk profile and appetite.
Joining Darwinex is totally free and you can try with virtual money in a demo account first (sign up here). However when you start trading the following service costs apply:
- trading brokerage commissions of USD 25 per Million USD traded (0.0025% of traded nominal)
- success fees of 20% from quarterly profits based on high-watermark and net of all execution costs, for every DARWIN they have
- swap interest for underlying trades held overnight, which can be positive or negative
It’s worth noting that Darwinex acts as the broker as well. They currently source their liquidity from LMAX and the spreads offered are very competitive (average 0.2 pips for USDJPY and EURUSD pairs). Because of the small ms latency between when the DARWIN’s trader executes their trade and Darwinex replicates this trade for the DARWIN’s investors, some slippage may occur. However, for each DARWIN the slippage is clearly reported. In addition, Darwinex will stop accepting new investors into a DARWIN if slippage becomes too large (this because increased volume slippage works systematically against investors).
Currently accounts can be opened in USD, EUR and GBP, with a minimum deposit of 500 in your chosen currency. The minimum investment in a single DARWIN is 200 and the maximum is 25,000 EUR/GBP/USD. Worth noting that US and Japan residents currently cannot open accounts on the platform.
From a trader or strategy provider perspective Darwinex is also unique compared to other social trading or trade copying platforms. On all these platforms, the trades of a trader are shared real-time, often not just with the investors but with everyone on the network. One of Darwinex’s founders was an accomplished trader for over 10 years and based of his experience, a key reason for introducing the concept of DARWINs was to protect the independent traders and strategy providers’ intellectual property and integrity. Their view is that if someone spends years defining and polishing a trading strategy, this should not be given away for free. Hence on Darwinex the underlying trades of a DARWIN are not shared and the trader can be assured their intellectual property is protected.
For their efforts and performance, traders are paid 20% of the quarterly profits achieved for investors in their DARWIN (s). The fee is calculated on a “High Watermark” basis. All DARWIN providers need to trade from a real money account, but they can they can benefit from the low spreads offered by Darwinex as a broker.
After running in beta to an exclusive list of investors for over a year, Darwinex opened its doors to the general public on December 9th 2015.
On March 7th 2016 Darwinex also launched the revolutionary new Darwinia Index, initially only to their existing clients, but after 4 weeks to new investors too. As investor, instead of selecting the DARWINs or strategies yourself, the Index will do this for you. You just invest in the Index, similar to when you invest in a shares fund.
The Darwinia Index leverages the existing performance and risk algorithms it uses to rate the traders and strategies on their platform. It is expected the Index will invest in about 40 to 50 strategies, and the target performance is 20-25% per year. Since we invested ourselves we will feedback on the performance in due course.
In terms of regulation, Darwinex is regulated by the Financial Conduct Authority (FCA) in the United Kingdom with FRN 586466.