How many robots operate at SMI and why?

How many robots operate at SMI and why?

SMI manager's commitment is to try to ensure that there are always a minimum of 10 systems operating the strategy, shortly you will see why.

Before that I would like to reinforce intrinsic elements of the SMI design, which will help us understand the reasoning behind the number of systems:

    1. Remember that each and every one of the trades that the systems placed automatically, always have a fixed stop in € added together with the buy or sell order that is placed at the same time the buy-sell order is plced, such as we explain in How does SMI manage risk?

    2. As we also saw in In which assets does SMI operate?, the first objective of the generation of systems is to keep constant the exposure that darwin SMI has to the currencies that make up the portfolio (in distance to the stops and always measured in € and having take into account the number of operations foreseen in each system of each pair). In order to keep said exposure as constant as possible systems are connected or disconnected.

    3. It is also possible that we need to add / reduce systems when, due to changes in exchange rates of the nominal currencies of the different contracts, make it necessary to update the lot of some pair thus decompensating the exposure in the currencies that make up the pair.

From here two ideas that explain the high number of systems

Size Matters

In quantitative trading we are working in our day to day with historical, average results, standard deviations, etc. If in our day to day, for example when we back-test a system, we are very aware of the importance of the sample size for the analysis to have statistical significance, from our point of view leaving portfolio (in this case darwin SMI) in a few systems, no matter how tested and reliable they are, it is incurring a very high risk, while if we increase the number of systems it will help us to comply with the law of large numbers and help the portfolio's profitability averages are achieved. If a specific system fails us if the size of our portfolio is large, in our case a minimum of 10 systems, the effect will be 10% which will be acceptable, very different from if we only had 4 where it would affect us by 25 %.

The more the better

In the case of SMI, better and also easier. All our design effort is focused on having a balanced exposure between the currencies that, for different reasons, we have selected, in order to compensate for deviations in a specific currency we must look for systems in pairs that contain those currencies and evaluate the effect it will have on the currency. Another currency that makes up the pair, all taking into account the number of operations and that to connect or disconnect a system must previously pass all profitability filters, drawdown, etc. so it is almost impossible to achieve such an equilibrium unless the number of pairs and therefore the number of systems is high.

Our objective is not only to maintain the number of active systems but over time to increase it so that SMI is more profitable but above all as safe as possible.