As the birthplace of P2P lending, the UK has been the fertile soil for the development of fintech. In recent years, many outstanding enterprises have emerged. We travelled to London in June 2017 to visit several representative fintech companies, and here we share one of a several special reports on their innovative business models.
Darwinex is a foreign exchange broker which is dedicated to serving individual traders. Headquartered in London, UK, Darwinex Exchange was founded in 2012. It is a foreign exchange broker with brokerage and asset management licenses from the Financial Conduct Authority (FCA) and has been in operation since 2014. Individual traders can conduct transactions through Darwinex's MT4 platform for foreign exchange, commodities (such as precious metals and crude oil), stock indexes, CFDs, and more. Investors can choose to follow good traders and make investments.
The core offering of the platform is to find and serve outstanding personal foreign exchange traders, to solve the problems such as the small size of individual traders’ activity, lack of intellectual property protected and so on. There are currently more than 3,000 investors and traders on the platform, and the number of investors and traders is growing rapidly.
Operation Mode that Takes Individual Traders as the Center
The Darwinex platform includes both investors and individual traders. After individual users complete registration, they can open a demonstration or a real account and become investors on the platform. The platform establishes links between traders and investors. Investors can choose excellent traders on the Darwinex platform. Then, the platform will show the performance of each trader in a fractional way. Then, when the investor chooses the targets, it's like choosing different Exchange Traded Fund products. Users can choose to deposit funds in US dollars, euros or pounds, and the investor's investment threshold is 500 dollars / euro / pounds. In terms of traders, when the trader's original trading strategy on the platform reaches a certain score, the trader can register as a trading strategy provider and create their own investable product (Darwin) and "listing" on the Darwinex exchange.
1) Darwin Model
Darwin, in fact, is a product for investors to invest based on the traders' MT4 trading strategy. Investors can buy and sell Darwin on the Darwinex exchange like buying and selling stocks. Darwinex differs from other social investment platforms in that the platform does not disclose in real time details of each trader's trades (historical records can be queried) to protect the intellectual property rights of the trader. The available information includes a platform for each aspect of each Darwin rating, as well as its return on investment, retracement, number of followers and funds, and thus allows investors to decide whether to invest.
So how does an investor pick out a good trader? Based on its own algorithm model, the platform grades the traders' strategies across 12 categories (0-100 points): experience, market relevance, risk stability, risk adjustment, revenue, loss aversion, positive return consistency, negative return consistency, position duration consistency, entry time, leaving time, the ability to accommodate funds. Based on these data, the platform will conclude a comprehensive Darwinex score (D score). This information can be used by investors to select the strategies that they are satisfied and willing to follow with, and it's also a good protection of the traders' intellectual property.
2) Serving Excellent Individual Traders
Darwin can gain more investors and then charge for transaction cost through excellent traders, which is the core of Darwin. The platform mainly serves individual traders in two ways:
First, it protects the intellectual property rights of individual traders. As mentioned above, investors can't replicate traders' tactics in real time through disclosed information. As Darwin's provider, the traders will draw 20% of the profits earned by investors from Darwin ("performance fee") in each quarter. This also encourages traders to remain profitable to some extent because the traders' interests are aligned with the investors', and the traders can only extract the performance fee when the investors' fund is profitable. A variety of fees that other fund management companies charge for investors, such as subscription fees, management fees, redemption fees, and so on, do not exist in Darwinex.
Second, Darwinex enables individual traders to trade larger scale funds. The problem that individual traders often face with is that their personal funds are limited, and they can't use large-scale funds to obtain income. Darwinex's asset management licenses provide financial support and effective legal support for individual traders, enabling good traders to use large-scale funds to implement their strategies.
Darwinex's Risk Management
Darwinex sets all Darwin's risk levels (VaR at confidence level of 95%) at 10%. The risk level of the traders' MT4 trading strategy does not affect its corresponding Darwin's risk level, because while Darwin replicates the MT4 trading strategy, its background risk control mechanism will automatically adjust the proportion of replication. In addition, according to Darwinex's own algorithm, Darwin will stop accepting new investments to prevent investors from investment risk once a Darwin in the exchange triggers a management-scale threshold and reaches a certain level with the investors' actual yield difference.
In addition, Darwinex produced a hedge Darwin called "DWC" based on its accumulated community performance indicators and trading data to hedge the risks posed by significant events in the market. The platform advises investors to buy this Darwin.
Darwinex's Use of Community Data
As a broker, Darwinex's advantage is that it can accumulate the real-time transaction data of traders and investors. If the traders are good enough, they can use the data to generate independent strategies. These data are often more real time than social data and have less noise.
Darwinex has now used community data, which is the historical transaction data of traders and investors, to produce a hedge Darwin (code DWC) to help investors hedge against the risks posed by market changes.
At present, community data is provided only within the platform and is not allowed for external platforms. Because of the uniqueness of the data, the strategies derived from the data will not be meaningless because of market consistency.
Q&A
Below is our interview with Juan Colón, CEO of Darwinex:
Q: Would you please introduce Darwinex in brief?
A: Darwinex Exchange aims to serve proactive investors and individual traders. At present, there are more than 600 million individual traders around the world, who are our company's core assets. The Darwinex platform can solve the problem of fund deficiency (the peanut problem) that individual traders are faced with. Excellent individual traders can get follow-up investment from investors through the platform and raise the scale of funds.
At present, the company's core team includes a total of 42 people, and all the research and development technology are owned by the company. The platform has more than 3,000 users currently and the number is still growing rapidly. The company is a broker and asset management company registered in FCA. China is the company's fourth largest market, and we have a lot of good traders from China.
Q: How to filter good traders?
A: The platform has developed twelve indicators based on its own algorithm to score the traders' strategies (0-100 points), thus distinguishing between good and bad traders, and these indicators are independent and unrelated with each other.
Q: What is the company's main competitiveness?
A: On one hand, compared to other foreign social networking platforms, Darwinex gives more protection to the intellectual property rights of individual traders. Some platforms will reveal the specific operation of the traders, so that others can copy the deal in other platforms, thus the traders can't benefit from these platforms and these platforms can't attract really good traders. On the other hand, Darwinex solves the problem of small fund scale of individual traders. In contrast, some foreign exchange trading platforms have advanced tools for proactive investors, but they can only expand the fund scale by adding leverage.
Q: How about Darwinex's commission?
A: We offer very competitive commission fees because we are faced with proactive individual traders. Through low commission, we can attract outstanding individual traders, so that the platform will also get a lot of investors and more trading commission.
Q: Is there any special support for excellent personal traders?
A: We hold a real account trading contest every month, and the top 48 traders can get Darwinex's documentary fund of 4 million euros. The traders can manage the documentary fund for 6 months. If the documentary fund is profitable, then the trader can get 20% of the performance fee.
