In this short video we’ll talk about divergence
due to base currency. Lets say you are an investor with the euro
as your Wallet currency. However, when going to your portfolio, you
notice that the DARWINs you have invested in, or some of them, have a different base
currency than yours. Does this affect you? The answer is yes. How exactly it affects you is the topic of
this tutorial and for explaining it we have prepared this spreadsheet. Put yourself in the situation of having invested
1000 euros in a DARWIN that trades in US dollars and is about to make its first trade after
starting to be listed on the DARWIN Exchange. It is quoted at 100 as every new Darwin. The first trade this DARWIN is going to replicate
is a trade in the audyen with a leverage of 1 to 5. In order to achieve the same leverage as the
DARWIN, you, because you are trading in euros, have to buy a slightly larger volume of the
asset as the Darwin trading in US dollars. You buy at the same price and close the trade
at the same price. What does change, however, while the trade
is open, is the value of the euro against the japanese yen, while the value of the US
dollar against the japanese yen does not change. This accounts for a difference in the return
after converting the return to euros and to US dollars. So, in spite of having closed the trade with
exactly the same pips, the DARWIN trading in euros has a slightly lower return. How much lower? Well, variation of the return between the
trade made in euros and the trade made in dollars is exactly the same as the variation
of the eurodollar. You can download the spreadsheet from a the
link you can find in the description of this video in order to see yourself how a change
in the value of the euro against the japanese yen, while the trade is open, affects return
divergence. Let me sum up the takeaways from this tutorial:
When replicating DARWINs’ trades, you will always trade in the currency of your Wallet,
even if you have invested in a DARWIN with a different base currency. Base currency divergence only affects profits. If the DARWIN makes a winning trade, your
replication of the trade cannot become a losing trade due to base currency divergence. The only variation that counts is the one
occurring while the trade was open. Any variation before or after the trade has
absolutely no effect on divergence. When all trades of a DARWIN have a similar duration, divergence due to base currency will be aleatory: sometimes it will benefit you,
sometimes not. With trades open during weeks or months, divergence
due to base currency can be higher than usual. Please make sure you also watch the tutorial
about divergence due to latency and volume. These account for a way larger portion of
divergence than base currency. Happy investing and remember that Darwinex
is an exchange, not an investment advisor. Past performance is not necessarily indicative
of future results.