Subsequent to the rebranding of rating agency for trading strategies TradeSlide to its new FCA regulated entity, Darwinex, the firm has today announced to LeapRate that it is opening up its DARWIN investor platform to alpha testers in demo (virtual money) mode.
The company, which provides new type of asset class that powers peer-to-peer asset management, has taken an avantgarde approach to the evolution which has taken place recently across the entire sector within the electronic trading business, with some social trading providers electing to integrate their service into a full enterprise solution and provide brokers with an end-to-end system, and others taking a platform neutral approach.
Darwinex has taken a technology-led approach, combining peer-to-peer networking technology with its investor platform, has now provided the ability for developers to conduct alpha testing in demo mode, potentially leading to the firm incorporating this functionality into a live system which will be unique to Darwinex clients and not available to other brokerages as Darwinex provides an integrated and closed system rather than offering a system which integrates with third party or other broker platforms.
This development is timely, with LeapRate having brought the exclusive news that Strategy Store has today announced its partnership with Alpari in order to offer Alpari Forex Signals Club, which was brought to fruition by Dmitry Orlov, a pioneer of Alpari’s PAMM account. Strategy Store’s solution matches PAMM technology with social trading, demonstrating that this could be a favorable methodology for many firms.
Darwinex is well positioned to provide an advanced system for professional strategists, developers and lead programmers alike, as the platform was granted regulatory approval by British financial regulatory authority, the Financial Conduct Authority (FCA), at the time of rebranding from Tradeslide.
Juan Colon, CEO of Darwinex today explained to LeapRate the methodology behind opening the platform to alpha testers: “We are now using the algorithms which were developed during TradeSlide’s existence, alongside risk management algorithms to market investable products in a way that non-traders may rigorously buy” he explained.
“Having people talk about investments in our site can create all sorts of issues for us on a regulatory basis. Some companies have found themselves in regulatory hot water because social trading considered by the FCA as providing investment advice, and the trade-leaders of many companies don´t hold permission to give investment advice” Mr. Colon continued.
Darwinex therefore considers that in order to ensure that in order for traders and investors to be able to operate long-term with a system that supports both, an entirely new approach must be taken.
In marketing the product, Darwinex charges investors a 20% profit success fee, and rewards the trader with 15% of the total profit, representing 75% of the total take-up.
The platform takes up the role of marketing to investors, provides a middle office system which rates the performance of the strategies as well as contains its own risk management service and compliance function.
Mr. Colon’s view is that many brokers cannot align with traders for investor profit. His concern is that most traders want revenue, and that the only valid argument that a trader can make with an investor, is that he trades a strategy which can scale with capital to deliver more profits than he currently does. It is very hard to charge success fees without regulatory permission, since the trader that cant make a success fee legitimately, a common practice is to bring another party into the equasion, in the form of social trading or mirror trading, which charges on trade volume, rather like a broker itself.
Mr. Colon considers that the execution commissions on copy and mirror trades for investors are often marked up to keep the lead traders happy, in order to give a commission “kick back” to the trader.
“This causes a conflict of interest as the investor wants profit, and then there is the trader, who generates revenue out of volume” stated Mr. Colon.
“The easiest way in the sort term to generate volumes is to do lots of trades and generate volume until the investors lose their money, at which point in the short term, the broker is happy because revenue was generated, the trader is also happy as revenue was provided to the trader for bringing volume to the broker, but the investor loses out” he said.
The result of this, according to Mr. Colon, is unsustainability as the investor will not invest further. He considers that the valuable intellectual property in this business is marketed for profit but not disclosed, meaning that most formulas for profitability, will never be disclosed by traders, therefore, his perspective is that published and disclosed trades are not credible with seasoned investors.
Clearly there is an entirely new industry perspective on asset management and investor accounts, which is fast becoming the electronic version of the now somewhat quaint representative who, in days gone by, would visit the home of an investor with a briefcase and paper application forms. The analog world of financial advice from a technical, investor and regulatory perspective, appears to have given way to the digital one.
