Dear Investor,
We hope that this message finds you all well, as we kick into gear for the start of the 2011 New Year. We are pleased to announce again that we have come out positive overall based on the average of our systems combined. We didn’t start out with the same “bang” that we experienced last January, but we milked what we could out of the markets, took what they gave us and ended up in decent shape. January was a very busy month for our team, and involved much travelling and personal meetings with some of our partners and our brokers to plan for strategic growth, hence our delayed update (our apologies). We have some important information below regarding our brokers (both current and future); that we encourage all of our clients to read. We also have some rather exciting news this month, mainly the roll out of a new trading system of ours. While it is true that this is a new system being offered to our clients, it is not new in its trade history which dates back to 2009. We are very honored to be able to offer this product to our network of investors as we have known about it for quite a long time. With the new system, different sized clients will participate on different platforms, and we have more detailed information on this below. As always, we encourage both our current and prospective clients to read through our update in its entirety so that everyone is up-to-date on our latest developments. As always we report the good, bad, and the ugly, we don’t hold back on anything, and we pride ourselves in explaining things as openly and honestly and clearly as we can to our clients.
Our returns for the month of January are as follows…
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JANUARY 2011 PERFORMANCE (Primary Broker where Audits are Conducted)
Precision FX: +5.93%
Chrome FX: -5.24%
McLaren FX: -0.17%
Vega FX: +12.39% (trades only at our second brokerage at this time)
Vega FX: +12.39% (trades only at our second brokerage at this time)
January Average: +3.23%
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Secondary Broker
Precision FX: -3.16%
Chrome FX: -3.89%
McLaren FX: +0.15%
Vega FX: +12.39% (trades only at this brokerage)
Chrome FX: -3.89%
McLaren FX: +0.15%
Vega FX: +12.39% (trades only at this brokerage)
* Account Discrepancies – Once again, please remember that if your returns for a given month do not match our posted returns take note that our numbers are from the 1st of each calendar month, to the last trading day of the calendar month. If you have invested in the middle of the month, your numbers may not match ours and could vary significantly. In addition to this, if we have open trades at month-end, we calculate our return on the current balance that day at midnight server time, NOT the floating equity. So open trades which have not realized their PnLs yet will be carried into the next month.
* Please keep in mind that we are now trading some of our systems at more than one brokerages. We will always have discrepancies between different brokers (more on this below). For certain systems we have also noticed small discrepancies between larger investor’s accounts (100K+) and very smaller investor’s accounts (<5K). This often has to do with the broker’s min position sizes and how smaller trades are distributed with the allocation software in our MAM/PAMM.
Our Performance Table has also been updated with the following statistics of interest:
MONTH | PRECISION | CHROME | MCLAREN | VEGA | AVERAGE | |
Dec-08 | 32.30% | 72.73% | no trade | no trade | 52.52% | |
Jan-09 | 18.70% | -4.19% | no trade | no trade | 7.26% | |
Feb-09 | 27.50% | 160.30% | no trade | no trade | 93.90% | |
Mar-09 | 29.50% | 21.97% | no trade | no trade | 25.74% | |
Apr-09 | -34.40% | 61.33% | no trade | no trade | 13.47% | |
May-09 | 53.30% | 33.35% | 9.43% | no trade | 32.03% | |
Jun-09 | 23.60% | 25.77% | 30.46% | no trade | 26.61% | |
Jul-09 | 10.10% | 20.69% | 28.02% | no trade | 19.60% | |
Aug-09 | 26.92% | 10.77% | 26.94% | no trade | 21.54% | |
Sep-09 | -0.32% | 5.44% | 7.83% | no trade | 4.32% | |
Oct-09 | -4.26% | 20.36% | 11.94% | no trade | 9.35% | |
Nov-09 | 10.76% | -20.98% | 29.39% | 35.58% | 13.69% | |
Dec-09 | 9.37% | 15.94% | 7.78% | 11.14% | 11.06% | |
Jan-10 | 33.63% | 27.91% | 4.30% | 14.63% | 20.12% | |
Feb-10 | 15.31% | 14.93% | 2.33% | 22.48% | 13.76% | |
Mar-10 | 15.43% | -5.08% | 6.75% | 13.57% | 7.67% | |
Apr-10 | -8.11% | -9.43% | 2.99% | 1.34% | -3.30% | |
May-10 | 0.70% | -7.66% | 21.07% | 6.52% | 5.16% | |
Jun-10 | 20.86% | 10.56% | 9.68% | 12.75% | 13.46% | |
Jul-10 | 10.80% | 14.57% | 0.15% | 4.29% | 7.45% | |
Aug-10 | 5.46% | 2.34% | 7.35% | 3.34% | 4.62% | |
Sep-10 | 14.91% | 6.13% | 1.37% | 0.82% | 5.81% | |
Oct-10 | 10.36% | 0.02% | 28.55% | 9.60% | 12.13% | |
Nov-10 | 0.05% | 5.60% | -0.35% | 19.62% | 6.23% | |
Dec-10 | 8.83% | -8.04% | 0.20% | 5.77% | 1.69% | |
Jan-11 | 5.93% | -5.24% | -0.17% | 12.39% | 3.23% | |
TOTAL COMP'D RETURN: | 1664.22% | 3157.26% | 749.78% | 395.20% | ||
MONTHLY AVERAGE: | 12.96% | 18.06% | 11.24% | 11.59% | 13.46% | |
MONTH-END TRADING RECAP
1. Precision FX – January was certainly a back ‘n forth month for PFX. Scalping conditions were decent on most pairs except the AUDNZD pair which caused us some problems and was also responsible for a larger drawdown at our second broker, causing the results to vary quite noticeably between brokers this month. AUDNZD has been turning into one of the more difficult pairs to trade (and it was once of the easiest) which is a key example of how markets constantly change. This is nothing new to us, and we are continuing to further diversify this system and bring new strategies in or remove old ones when warranted.
As mentioned a few months back, we have something that we believe is a going to be an extraordinary addition to the PFX strategy. As we have mentioned in our previous updates we have been testing out a custom trade indicator for quite some time which works on both the EURAUD and EURUSD pairs and has been absolutely phenomenal in its performance to date (especially EURUSD). Typically this indicator requires a lot of manual intervention, and sells for a very high 6 digit price tag. It has recently been closed down and had its sales halted altogether as of this past month. We were able to negotiate indefinite use of the particular indicator and are working on a JV arrangement whereby we will have it programmed into a completely automated single trade strategy. This is a bit of work and will require some testing of course once complete, but we feel it may be the single best addition to the PFX system over the course of its 3+ year lifespan once finalized. We have excitedly started working on this already.
This month we witnessed quite a variance in performance from one broker to another because of two ANDNZD trades as mentioned above. Last month our primary broker had higher performance, this month our secondary broker has higher performance due the exact same reason. This does not necessarily mean one is better than the other. Just that different trades were picked up which ended up in different results. We are working on ways to bring these in line more as PFX is the system most affected by different brokerage environments (spreads, chart data, and price action). Our secondary brokerage has recently applied a new patch to their trade server’s bridge which has been performing phenomenally for us and we expect our performance here to match or slightly surpass that of our primary brokerage on a regular basis going forward. We are also thoroughly testing a custom trade copier to standardize performance between multiple brokers. As of right now PFX is our most diversified system consisting of of over 8 sub-strategies ranging from a basket of custom, proprietary and commercial automated trade systems, technical indicators, news filters, and a team of discretionary watch dogs with eyes on it at all hours.
2. Chrome FX – Our Chrome system was our lowest performing system this month, due to nothing more than getting caught in a large unannounced news event which occurred while we had some open trade exposure on a few of the AUD pairs. Typically we have news filters that catch this, and we subscribe to services to alert us of any last minute or unannounced news releases that usually catch these in time, but there are always a few of these which we may get caught in from time to time. Other than that, it was a decent month for this system. There have had some further changes to this strategy implemented as of Wednesday Feb 9th, which we expect will give a much needed little boost of performance to this strategy. Drawdowns should be recovered much quicker as a result. This is, and has always been our most aggressive system so all clients should expect to see more “hard line” trading methodologies in this account, and are of course expected to treat it as such when planning a diversification strategy. This account has the potential to boost people’s portfolios quite nicely for accelerated growth, but of course there is also the downside, and investors should be careful not to be too top loaded or heavy on any one system to ensure safety. We are looking forward to getting this system back into a nice winning streak for a while starting with this month.
3. McLaren FX – McLaren FX had a rather quiet month in January. The system was turned on later in the month, and there were not a whole lot of trades placed. There were a lot of impactful news events in which the system’s news filter picked up on and avoided the markets as a result. It ended the month pretty much at break even and overall we were pleased with how it managed each of it’s trades. As you may have read previously, McLaren FX has earned the nick name from us as “the sleeping giant”. This is because it stays quiet for periods of time, and then erupts with some nice heavy activity. We of course have no clue when these “eruptions” are about to occur, but historically speaking they come in cycles and we usually see them to some degree every quarter. This is why we stress to investors that it should be treated as a long-term system. Parking funds and allowing them to compound for long-term growth is the best approach here, as it is with all of our systems as well.
We have noticed specifically that this system seems to be profitable when our scalpers are not. This makes for some nice reverse correlation, and of course a nice diversification between PFX/CFX and this system. This system has been placing some good trades for us this month so we may have a nice growth month in store for us even though its still too early to tell. We notice that many of you write to us when new trades are triggered by the McLaren system asking about the logic behind the trades. It may seem to go against “traditional trade logic” in that this system is looking for various “pull-backs” or retracement in price action, along with other technical indicators to line up before trades are executed. This is what makes it often appear confusing in that trades are always placed in the direction of the longer-term trends. It’s a little difficult to grasp or to try to reverse engineer the logic behind the trades in your head without fully understanding this strategy. The strategy has been highly successful to date. Its 100% fully automated, and the developer is a true guru, who’s experience shamefully far exceeds ours and whose advice we deeply respect. We enjoy receiving month-end emails from him saying “not bad for hands off, stress free trading eh?”. Although it is not as “action packed” as some of our other higher frequency strategies, it is one of our more powerful and stable longer term systems and a great diversification cornerstone to anyone’s FX portfolio.
4. Vega FX * NEW – Ever since the Guardian system was dismantled back in July, we have been wanting to bring a 4th system to the table as we feel 4 is a good number for FX diversification. We looked at various options including a synergistic strategy of our core systems and various others options. We finally feel that we have decided on the best option for number 4 which is being called “Vega FX”. We have been working closely with the development team behind this system on other ventures for some time now, and always knew about this program of theirs but had never devised a way to do something together with it. In October of 2010 when some substantial changes were made to this system we decided to get involved ourselves (one of the few systems we invest in outside of our own). We finally sat down and put our heads together on what we could and couldn’t do with this system in terms of making it available to outside investors. This differs quite a bit from our other systems in that it has the ability to run on multiple platforms, where our other core systems have some limitations in that regard. This gives the system the ability to trade on different feeds and environments. We are recommending this program for clients with 50K+ to be able to trade on our preferred platform. We can make lower exceptions for our existing clients looking to add more for diversification, but lower amounts will be placed on a different platform. We have a great 15 month live history with this system, and have compiled it in our performance table and will soon provide a detailed written strategy profile, trade statements, and risk analysis of it. The system is off to a bit of a rocky start in February, but markets have been eccentric during the past two weeks as well and we have high expectations for this system over the long run. Interested parties should contact us to learn more.
INFORMATION AND NEW DEVELOPMENTS
1. Our Current Brokers – (Very Important) – We have a lot to say in this department and we ask that clients read this section in it’s entirety as we have some important information to discuss. This was a rather difficult month for some of our brokers, and we want to ensure that everyone understands things clearly as this also has an impact on us.
Sparen FX - we have heard from some of you last month that you were having long waiting periods on withdrawals being processed from Sparen FX. We ourselves were also waiting a little longer than usual for our payments but as of this week the majority of everything pending should now be caught up and back on track. Some of you wrote to us expressing concern, and we have assisted where possible to ensure things moved along as swiftly as possible. If you are still waiting on a withdrawal, please let us know and we can do what we can to ensure things are processed swiftly and correctly. We inform our investors upfront to allow anywhere from 3 days to 2 weeks for outbound wires to be processed (and to plan accordingly). Sparen FX is a smaller boutique STP brokerage, and does not carry a large cash "float" like many of the huge retail brokers do. Instead they pull withdrawals directly from their various liquidity providers and prime brokers and then process them once they arrive. These requests usually go in on Friday nights. It is important for clients to understand this. Clients who need to pull investment profits multiple times per month, or who are paycheck investors (i.e., living off of dividends) are better off trading elsewhere. Sparen’s business model has always been to work with larger institutional investors. We were one of the first groups to get an exception for retail and try to assist in keeping the burden low on administration for them. Also, when requesting wire transfers, please ensure you double check your forms and your wire coordinates for accuracy before submitting. We have found on more than one occasion that clients had provided wire instructions with errors, causing lost time and frustration on everyone’s end. After speaking with the brokerage, we learned they were dealing with an influx of new clients, a large amount of both withdrawals and deposits during the holiday season, a short staff extending well after the xmas holiday into January, and an internal audit taking place on their banking and books during most of January which resulted in a few delays and a bit of a cluster for some of our clients, but things are now caught up and running smoothly. Our kudos goes out to Liz who runs their small management team and works very hard to look after all clients. We had the pleasure of finally meeting her this past month. She is very busy, but a wonderful person who works very diligently for us.
Inovatrade – we have also heard from some of you this past month regarding the CFTC tagging Inovatrade as not being properly structured for working in the USA USA retail investors to work with any brokerage outside of the USA Miami office, and moved full operations to their new office in Panama City Panama Miami
What we really like about this firm is that both their technology providers and ECN liquidity are all “in house” and owned/provided by the same parent company. They are not co-dependant on anyone. They are very large and well known amongst other brokerages and clear a very large amount of Asia ’s forex trades and offer some of the best pricing we have seen to date. One unique and attractive feature we have learned of their structure is that every client deposit is 100% secured and guaranteed protection provided by a trust used for client deposits. The client trust provides very strong asset protection against vexatious litigation or any spendthrift beneficiaries. Even the brokerage owners cannot access the client deposits in the case of bankruptcy/default, and in the very rare event that this was to ever happen the client assets would be distributed back via the trust deed (declaration of trust) written by the trust's lawyers. This is why the account opening process is a little strict with Inova, and you must sign and notarize your beneficiary forms. This is a very attractive and unique structure privy to this brokerage which you will not find with many other financial firms and which many of our clients are really fond of. They have put a lot of thought into asset protection and their risk exposure. Most of the largest NFA brokers do not offer anything in this regard for protection of capital. On that note, it must also be understood that the NFA is an independent regulatory organization with no ties to any specific marketplace whatsoever. Simply put, they are a self-regulatory organization for the U.S. USA
2. Misc (on the broker front) – dealing with brokers has been one of our largest stresses, largest causes of frustration, and largest amounts of work for us to date. We always joke that if we did not have to worry about brokers, trading FX would be sooo easy! Testing feeds, testing platforms, liquidity, regulations, accounting, IB'ing, Money Management processes etc.. Its very complex and time consuming. Unfortunately there is no perfect broker out there. We have tried them all. The big retail bucket shops in the USA
3. New Broker – We have started to work with a very large financial institution which was founded in 1987, and provides competitive wholesale market brokerage services in a multitude of global over-the-counter (“OTC”) and exchange listed cash and derivatives markets for fixed income, equities, financials and commodities. This is a massive brokerage firm, headquartered in New York, they employ more than 1,700 people with additional offices in London, Paris, Hong Kong, Seoul, Tokyo, Singapore, Sydney, Cape Town, Dubai, Tel Aviv, and Dublin among others. They provide services and products to over 2,400 institutional clients, including leading banks, corporations, insurance companies and hedge funds. They are regulated by the NFA and CFTC in the USA , but also the FSA in the UK
Our firm will be setup as money managers and IBs at each of these FCMs and can accommodate to most of our clients at one of these 3 firms depending on client’s domicile and corporate structure. Our apologies for such a long-winded brokerage focus and a bit of a rant in this update, but we had a lot of information to share on this front.
SUMMARY
As we head into 2011 we do so with a different mindset as we have in the past. We are looking to greatly simplify and streamline many aspects of our business model and be more selective in how we work, and who we work with in order to strategically grow. We find we often spend a lot of time working in certain areas of our business where our time is better spent on other aspects, and we are trying to really identify this, and shape our company around certain changes in which we are implementing. On the “who” front this includes not only our brokers, but also working with clients, partners, IBs etc... who fall in line with what we are doing and have the same goals.
In terms of trading, over the past 5 years we have either tried to construct, or have chased after many of the “pie in the sky” type systems, always looking for the “holy grail” system which never encounters drawdowns, and shoots the lights out with high returns each and every month. When I say we have looked at it all, our team truly has! From complex algo strategies, to neural nets, to artificial intelligence, to high frequency trading (HFT), to Genetic Algorithm Technology (GET) to low latency and statistical trading to some of the strategies used by the largest institutional firms. We have experience with them all. While many of these truly are and can be consistently profitable, they often come with very high maintenance requirements and hefty price tags, and are hard to make available to average investors for long periods of time. More and more we appreciate the classic “KISS” (keep it simple stupid) expression and are trying to focus on simplicity for the things that work and work well. Understanding this and more importantly having realistic expectations in terms of risk, drawdowns, long-term profit targets, and fair trading conditions are our primary focus this year. Surrounding ourselves with the proper brokers, like minded partners, and sophisticated long-term investors who understand this and share these same ideas with us are set to fall in line with us in 2011 and we are looking forward to making it an exceptionally profitable year to remember.
This will be our 3rd consecutive full year in a row of managing client funds and we want all our investors to understand that we are here for the long haul. As always we will do our best to communicate with our investor base whether in the form of monthly updates, or on a “per needed” basis as we go through the month on any issues which may present themselves. Please visit our website and blog for frequent updates and newsletters (note: we are always adding new content to our website) and do not hesitate to contact us at any time should you have any inquires or concerns you would like to discuss with us.
Thank you to all our current investors for your trust once again in trading with us and we wish you all a great and safe weekend!
Warm Regards,
Cayo Flow Team
Cayo Flow Team
