High-Water Mark (HWM) Model
The High-Water Mark (HWM) model is the method used to calculate the performance fee that is applied to investors. It stands for the highest value that a copy-trading account has achieved over a period.
The HWM ensures that the strategy provider is not paid twice for the same performance. Thus, the performance commission is charged only when new profit is gained by the copy-trading account.
The HWM performs relying on the following principles:
At the start of strategy copying, the HWM is the initial investment amount.
On the 1st of the next month (if no other trigger events happened earlier), the performance fee is calculated and deducted from the investor's account.
The performance fee is charged on the difference between the account equity at the end of the month and the HWM.
After the performance fee is deducted, the account equity before the fee realisation (if it exceeds the historical HWM) becomes the new HWM. Otherwise, the historical HWM is retained.
The account equity at the beginning of the month is updated and does not include the realised performance fee.
If the account equity at the end of the month is below the HWM, no performance fee is applied to the investor's copy-trading account.
| Month | Equity (Month Start) | HWM | Account Equity (Month End) | Chargeable Amount (Month End Equity - HWM) | Performance Fee (30% on Profit) |
|---|---|---|---|---|---|
January | 10,000 | 10,000 | 12,000 | 2,000 | 600 |
February | 11,400 | 12,000 | 11,000 | 0 | 0 |
March | 11,000 | 12,000 | 12,500 | 500 | 150 |
April | 12,350 | 12,500 | 14,000 | 1,500 | 450 |
HWM Calculation Points¶
The HWM is calculated and the performance fee is charged every time one of the following trigger events occurs.
1st of each month.
The strategy provider stops providing their strategy.
The investor stops copying the strategy.
The investor withdraws funds from their copy-trading account.
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