Darwinex: the good , the bad and the ugly

[Andras0503]

Is it me, or do these darwins have really poor performances nowadays? JTL new maximum drawdown recently, PUL new maximum drawdown recently, YKA new maximum drawdown recently, TRO new maximum drawdown recently, BSX new maximum drawdown recently, SYO serious drawdown, EPG serious drawdown... I'm not invested in all of these, and luckily I scaled back in time (especially the ones with no skin in the game: I also realized this rule...), but this is just painful. Something changed in the last year in the markets, and these amateur strategies just don't work anymore (especially with the very substantial investment fees, you just get nothing in the end, and even bear the losses). 2022 spring was the last profitable period, and 2/3 of those profits are now vanished in this huge drawdown. I just don't see the point of this darwin portfolio investing anymore: maybe I can expect 3% a year from this, but it is a very risky 3%... Bonds are just better in every way: bonds are risk-free, and I get even more return from them (which is ridiculous, but true). If you don't have access to trading strategies like Renaissance Technologies has, you just shouldn't be in the markets - and these amateur strategies are very-very far from this. After the fees to the traders and Darwinex, not very much is left on the table, if any. What are your opinions? Are darwin portfolios dead, or is it just a very unlucky period?

I see 3 issues/questions investing in darwins / darwin portfolios:

1. You just don't have enough information to pick the right darwins. Okay, 3+ years track record: and what's from that? That is maybe 0.1% of the information you could get from thoroughly backtesting the strategy (with sensitivity analyses, Monte Carlo method, etc.). So, the public information about the darwins is just nothing compared to what you could do if you owned the strategy and made your own backtests. You sell, buy and trade darwins, and build optimized portfolios from them: these are just some ridiculous illusions, you just cannot do these from the publicly available data of the trading strategies.

2. 20% performance fees, right? Well, the strategies go into drawdown after you paid, and you don't get back your paid money. Currently, it seems like I paid as much performance fees as my overall profits, so the performance fees seem like 50%. SOME traders may just go after these performance fees: their strategy is not even profitable anymore, but because of how this performance fee system works, he is able to make money from the investors. I think the performance fees should be untouched for at least a year, and investors should get back their money if these drawdowns happen: this would be a much fair system. Of course, this will never be the way.

3. Investing in drawdowns is another illusion in my opinion. Predicting a trading strategy from its past is impossible in my view - or it would be included in the strategy itself. Moreover, investing in drawdowns seems to be a martingale strategy to me: you increase the leverage if the strategy loses. What is it if not martingale?

So, all in all, I'm very disappointed in trading strategy investing, and I genuinely believe, a 2-3% annual return is the maximum one can make investing in darwin portfolios in the long run (and this 2-3% is with serious drawdowns, stress, etc). Absolutely not worth it. I spent 1.5+ years investing, put in a lot of effort, and made very little money. At least I see the reality of this fairytale.

 

[IlIlIlIlI]

1. You just don't have enough information to pick the right darwins. Okay, 3+ years track record: and what's from that? That is maybe 0.1% of the information you could get from thoroughly backtesting the strategy (with sensitivity analyses, Monte Carlo method, etc.). So, the public information about the darwins is just nothing compared to what you could do if you owned the strategy and made your own backtests. You sell, buy and trade darwins, and build optimized portfolios from them: these are just some ridiculous illusions, you just cannot do these from the publicly available data of the trading strategies.

I don't believe in backtests. The reason is simple: the frame is changed. Backtest methods expect repeating situations and extreme situations which are to survive. Today markets are driven by speculating traders and not by events. News are used. A lot of tales around markets want to tell you something else, but they don't work in medium or short time ranges.

2. 20% performance fees, right? Well, the strategies go into drawdown after you paid, and you don't get back your paid money. Currently, it seems like I paid as much performance fees as my overall profits, so the performance fees seem like 50%. SOME traders may just go after these performance fees: their strategy is not even profitable anymore, but because of how this performance fee system works, he is able to make money from the investors. I think the performance fees should be untouched for at least a year, and investors should get back their money if these drawdowns happen: this would be a much fair system.

Platforms like Darwinex support the trader's view here to attract traders and not the investor's view. Prolonging the timeframe would not really help. What could help is that the fee would be variable so that losers and winners are (partially) offset. But I agree:

Of course, this will never be the way.

So, all in all, I'm very disappointed in trading strategy investing, and I genuinely believe, a 2-3% annual return is the maximum one can make investing in darwin portfolios in the long run (and this 2-3% is with serious drawdowns, stress, etc). Absolutely not worth it. I spent 1.5+ years investing, put in a lot of effort, and made very little money. At least I see the reality of this fairytale.

1.5+ years is not a long time for this game. In the old forum, Juan from Darwinex described the life cycle of a Darwin or better: a startegy. It is not endless.

I'd really appreciate if successful investors could publish their strategy of picking Darwins, but they don't as they fear that if they are copied their profit would decrease.

 

[trilobite]

I'd really appreciate if successful investors could publish their strategy of picking Darwins,

OK, this is extremely cynical, but do you think there are any?

 

[trilobite]

maybe I can expect 3% a year from this, but it is a very risky 3%... Bonds are just better in every way: bonds are risk-free, and I get even more return from them (which is ridiculous, but true).

I think with interest rates picking up (especially here in the UK) a Darwin portfolio will really struggle to beat a risk-free return.

 

[IlIlIlIlI]

OK, this is extremely cynical, but do you think there are any?

I don't know whether there ARE any, but I know that there WERE some who wrote in the old forum that they don't publish their logic for picking Darwins as they feared that it would increase divergence if more investors invest in "their" Darwins.

 

[CavaliereVerde]

they don't publish their logic

This would not have prevented them to publish their results.
I have been a profitable investor during the first half of 2018: 20% return with negligible drawdown.
I was investing 20-30 darwins.
After that golden semester everything started to fail.
Also Javier Colon published his investing results for that semester and than nothing more.
At the moment I dont't think thare are profitable investors.

 

[CavaliereVerde]

Here you have the result of my first portfolio:

 

[Andras0503]

I don't believe in backtests. The reason is simple: the frame is changed. Backtest methods expect repeating situations and extreme situations which are to survive. Today markets are driven by speculating traders and not by events. News are used. A lot of tales around markets want to tell you something else, but they don't work in medium or short time ranges.

I think backtesting is the only way to evaluate a strategy, but I agree in that we have to be very careful about the results. Choosing the best parameter set is just overfitting, but walk forward / cross evaluation should give a more objective indication about a strategy. A reliable backtesting process is the most important (even more important than strategies), according to someone in a Better System Trader podcast (I don't remember which episode it was). I think if institutions hire quants for 6 figure salaries, then there is something in backtesting for sure.

I think with interest rates picking up (especially here in the UK) a Darwin portfolio will really struggle to beat a risk-free return.

In my country, 8.5% is the yield for some inflation-linked EUR bonds. Unfortunately, this bond is not available anymore, and the new EUR bond gives a 3% yield. And there are no taxes on bonds income, which is very great.

Here you have the result of my first portfolio:
[image]

I was just lucky when I started investing, and 2022 spring was a good period for those few darwins (I think JTL, SYO and THA). Now, I'm invested in 10 darwins: who have skin in the game, 3+ years of track record, have some kind of visibility (this forum, or private website), and seem okay overall. Getting the allocation, I apply some objective scalars (e.g. based on maximum drawdown and volatility), and some subjective scalars too. I'm not sure if it is profitable, there could be serious survivorship biases in picking these darwins. My main money is in bonds, and later I would like to trade by myself: until then this portfolio should be better than nothing (or I will lose, but I don't really care, I scaled this investment accordingly).

I made my own display tool for darwin portfolio (regarding darwins, I think we cannot really speak about "backtesting", so it is just a display tool), where I modeled a 30% performance fee, and 2% management fee (just to offset divergences). The portfolio seems okay, but of course, x percent should be subtracted because of survivorship bias -> so this could be a losing portfolio very easily! Time will tell.

 

[IlIlIlIlI]

I think backtesting is the only way to evaluate a strategy, but I agree in that we have to be very careful about the results. Choosing the best parameter set is just overfitting, but walk forward / cross evaluation should give a more objective indication about a strategy. A reliable backtesting process is the most important (even more important than strategies), according to someone in a Better System Trader podcast (I don't remember which episode it was). I think if institutions hire quants for 6 figure salaries, then there is something in backtesting for sure.


In my country, 8.5% is the yield for some inflation-linked EUR bonds. Unfortunately, this bond is not available anymore, and the new EUR bond gives a 3% yield. And there are no taxes on bonds income, which is very great.


I was just lucky when I started investing, and 2022 spring was a good period for those few darwins (I think JTL, SYO and THA). Now, I'm invested in 10 darwins: who have skin in the game, 3+ years of track record, have some kind of visibility (this forum, or private website), and seem okay overall. Getting the allocation, I apply some objective scalars (e.g. based on maximum drawdown and volatility), and some subjective scalars too. I'm not sure if it is profitable, there could be serious survivorship biases in picking these darwins. My main money is in bonds, and later I would like to trade by myself: until then this portfolio should be better than nothing (or I will lose, but I don't really care, I scaled this investment accordingly).

I made my own display tool for darwin portfolio (regarding darwins, I think we cannot really speak about "backtesting", so it is just a display tool), where I modeled a 30% performance fee, and 2% management fee (just to offset divergences). The portfolio seems okay, but of course, x percent should be subtracted because of survivorship bias -> so this could be a losing portfolio very easily! Time will tell.

View attachment 329684

If you want investor's data decuted by divergence and fees you could use this link https://team.alphanet.io/darwin_analysis/THA/?sv=6.5&pf=20.0&mf=1.2&is=00001 where you can also change the fees.

The link worked for every Darwin I tried.
You can download an Excel sheet where Darwinex puts in the aggregated value to deduct from the performance shown for fees and divergence. The heroic performance of 860% shown on the Darwin melts down to about 150% since April 2017 when the first investor appeared (generating divergence). This is a good value for 6 years, but I'm sure the majority of investors think there was much more when they look at the Darwin's performance chart.

 

[FXforfun]

Very interesting discussion. If you allow me, I would like to participate by expressing my opinion.

There were a couple of ideas that I personally have been thinking about for months:
- Widespread drawdawns in successful Darwins until the end of 2022.
- Investors who are not able to make good returns.

On the first one, generalised DDs. I agree with you and as a trader it is the one that worries me the most and the one I am working on. Could it be that the market has changed? Personally I think this is a fallacy. At every crisis, at every DD, someone automatically appears and says that the market has changed, that the strategy models are exhausted.

Ok, if the market has not changed then it is only a matter of time before things return to normal. These DDs should also serve as a lesson to us because returns in excess of 15% per year are exceptional and extraordinarily difficult to sustain. Returns of 30% sustained year after year; simply impossible.
The question remains as to why so many successful Darwins are suffering in 2023? I don't have a convincing answer. Perhaps they are not so decorrelated? Of course there is always the possibility that THE MARKET HAS CHANGED 🤣

About investors who are not able to make a good return. I am only a trader and have little concern about this issue. However, I suspect that most investors become traders of Darwins. They are buying and selling on very short time frames. These types of investors would probably perform better if they became swing traders.

In my opinion, an investor should put more effort into analysing the trader and less into their strategies. But as I say, I am not an investor!

2. 20% performance fees, right?

The Darwinex model seems fair to me. The investor, in any investment instrument, will be paying fees, commissions. It is logical. I don't think Darwinex should sacrifice its business. I don't see much sense in this criticism.

3. Investing in drawdowns is another illusion

Totally agree. From a Risk Management perspective, the time of DD is the worst time to enter.

 

[IlIlIlIlI]

Could it be that the market has changed?

As I watch it since years, markets change about every 3 month.
You can confirm that if you watch pure algo traders that there are DD periods of about 3 month where the trader is losing as the algo wasn't changed.

The more interesting question is: what is changed in the markets?

You can see an indication of a market change here for NDX: https://www.nasdaq.com/market-activity/index/volq
Sinking volatility could mean trades don't reach the tp before the market turns.
But it is only an indication, the effect can only be analyzed if you know the (usually hidden) strategy.

EDIT:
Another aspect investors could take into account for a Darwin's selection are the participation criteria for DarwinIA GOLD which must be filled before DarwinexZero (DarwinIA SILVER) Darwins are released for investors:

source: https://www.darwinexzero.com/capital-allocation#darwinia-gold

What is also shown here is the acceptance of an increasing DD related to the (minimum) return.

 

[Andras0503]

I'm thinking about closing all my investments in the darwin portfolio based on the top 10 Darwinex traders (which I presented here). Maybe my identification of the top traders failed. But I think it is unlikely.

I think that copy-trading-based investments cannot work for investors at this current time and state. The profit margins of the signals are too small, the investor fees (paid to the brokerage as well as to the traders) suffocate all of the profits. If you build a smaller portfolio, you can get lucky for a shorter period of time (like I did when I started), but that is only gambling in my opinion. (Unless you use "insider" data, and you personally know the trading system of a darwin provider, and invest only in that particular darwin - but you cannot do this based on the publicly available data in my opinion, it would be gambling.) I think my portfolio of the top 10 traders shows the long-term significant average: the average you can achieve by copy-trading-based investments in current times.

Here are some of my statistics:

• Gross return of the trades: 985
• Commission+swap paid after the trades (to Darwinex): -374
• Performance fees paid (to the individual traders 3/4, to Darwinex 1/4): -264
• Management fees paid (to Darwinex): -215
• What is left to me: 132 (and it is continuously decreasing month-by-month after my lucky start…)

This illustrates trading nowadays, I think. Just fighting with the trading costs. Markets are so efficient, you cannot significantly overcome the trading fees, hence any additional investor fee cannot be afforded. Therefore copy-trading cannot work for the investors currently. My statistics are based on 1 year and 10 months of data: maybe it is too early to draw a conclusion. But I think it is unlikely.

I think we should trade by ourselves. At least we can save all of the investor fees, and we can save 40% on the commissions using a professional account. And as a trader, the Darwinex brokerage can be beneficial, you can get investor money from multiple sources. Prop-firm challenges are also open to traders, I don't know which is better: other prop-firms or the Darwinex Investor system. So, while I cannot see Darwinex Investor as a viable investment (mostly because of the properties of copy-trading-based investments), Darwinex can be a good brokerage from the trader's perspective.

 

[IlIlIlIlI]

prop-firms or the Darwinex Investor system

If I got it right, there is a lawsuit running against MFF. MFF's homepage is closed meanwhile, so I assume there was fraud committed. Their manipulations on spreads and prices were typical for the bad dealing desk brokers 30 years ago, maybe they came from that scene.

A lot of the arguments against MFF can also be used against FTMO and others when they play their own brokerage on manipulated demo accounts. I'm also not sure about manipulations at FTMO as I had differences between the trial and the last challenge account running the same EA on both. They also halted the market sometimes during the U.S. opening - maybe they should not offer the swing account if they can't handle it.
Market prizes were always different to Darwinex in disadvantage of long term trades.
Currently they blocked this EA on the current trial account besides it behaves in line with the rules published.

Darwinex is free of all that manipulation features as they do not run an own market or pseudo market, they use liquidity providers like LMAX and Saxo bank. I also hope that the serious liquidity providers at LMAX and LMAX itself eliminate such a bad intentional behaviour against traders as MFF showed it.

 

[Andras0503]

If I got it right, there is a lawsuit running against MFF. MFF's homepage is closed meanwhile, so I assume there was fraud committed. Their manipulations on spreads and prices were typical for the bad dealing desk brokers 30 years ago, maybe they came from that scene.

A lot of the arguments against MFF can also be used against FTMO and others when the play their own brokerage on manipulated demo accounts. I'm also not sure about manipulations at FTMO as I had differences between the trial and the last challenge account running the same EA on both. They also halted the market sometimes during the U.S. opening - maybe they should not offer the swing account if they can't handle it.
Market prizes were always different to Darwinex in disacvantage of long term trades.
Currently they blocked this EA on the current trial account besides it behaves in line with the rules published.

Darwinex is free of all that manipulation features as they do not run an own market or pseudo market, they use liquidity providers like LMAX and Saxo bank. I also hope that the serious liquidity providers at LMAX and LMAX itself eliminate such a bad intentional behaviour against traders as MFF showed it.

Yes, it is a big positive that Darwinex is transparent, regulated well by FCA, and the market-making cost (cost from the bid-ask difference) is done by 3rd party.

It's just that because of the high efficiency of today's markets, it is extremely difficult to make work this copy-trading-based investment model. Not good for investors. I just park some of my money there, because I cannot invest (what’s more, I’m thinking about scaling back my investments because they do not seem to work), and I have not started my own trading yet.

For traders, I can see great prospects.

 

[frugi]

Alpha Capital Group are well worth a look if you take the prop route. They use an in-house regulated broker ACG Markets which is fed by a Tier 1 liquidity provider with prices from the live market. The trading conditions are truly excellent, with no manipulation. They're in a different league from the dodgy firms who create artificial slippage, delays and other problems on top. Spreads are decent with no commission. Demo, evaluation and funded accounts all enjoy exactly the same feed and conditions.

The owners and management actually have a strong background in trading and finance, they're not a bunch of 18 year old "entrepreneurs" who bought a white label package from a bucket shop brokerage and started a so-called prop firm with the sole aim of profiting from evaluation fees and making it as hard to receive payouts as legally (and illegally, in some case, it seems!) possible.

I think FTMO and possibly E8 are still legit as well, but I have no experience of them. I would avoid anyone else.

Apologies if this is too close to advertising Alpha (and off-topic), I'm simply a funded trader who has watched them go from strength to strength over the past year and am extremely happy with their service.

 

[IlIlIlIlI]

Alpha Capital Group are well worth a look if you take the prop route. They use an in-house regulated broker ACG Markets which is fed by a Tier 1 liquidity provider with prices from the live market. The trading conditions are truly excellent, with no manipulation. They're in a different league from the dodgy firms who create artificial slippage, delays and other problems on top. Spreads are decent with no commission. Demo, evaluation and funded accounts all enjoy exactly the same feed and conditions.

The owners and management actually have a strong background in trading and finance, they're not a bunch of 18 year old "entrepreneurs" who bought a white label package from a bucket shop brokerage and started a so-called prop firm with the sole aim of profiting from evaluation fees and making it as hard to receive payouts as legally (and illegally, in some case, it seems!) possible.

I think FTMO and possibly E8 are still legit as well, but I have no experience of them. I would avoid anyone else.

Apologies if this is too close to advertising Alpha (and off-topic), I'm simply a funded trader who has watched them go from strength to strength over the past year and am extremely happy with their service.

Alpha Capital Group has a restriction on EA usage as they have a too hard definition what they call a martingale.
So an EA cannot be started with the minimum lotsize as you're not allowed to increase lotsize with a follow up trade.

 

[frugi]

Yes, you're right they're quite strict about EAs. However as you are allowed to open multiple lots, provided the size per trade is equal to or less than the most recently opened position, you might be able to adapt your EA to circumvent the martingale rule by splitting the lots.

e.g sell 1 initial position
then sell 1 sell 1 instead of sell 2
then sell 1 sell 1 sell 1 instead of sell 3 etc.

Though I realise that multiple orders transmitted not quite simultaneously may result in different fill prices.

But if it's a commercial EA you're not allowed to use it anyway as that's counted as group trading (except of course for position managers and similar utilities which are fine).

NB The martingale rule only applies to trades in drawdown, you can add to winning trades how you wish.

Anyway I expect you already know all this, and I won't derail the thread any more.