Dear Investor,
We hope that this message finds you all well as we enter into the month of May. Our apologies for the delayed update as we have never been so busy in a long long while with things. Brokers are keeping us very busy, but we have also been very busy working closely with our traders and programmers to make some much needed (and long over-due) improvements and adjustments to the systems. Some of these are quite exciting; and others have been a long time coming. The biggest news this month lies primarily on the brokerage front. We have decided to cease trading at Sparen FX until the retail exit has completed whereby we will then be working solely with Inovatrade and OFM (more details below) and reporting our trading here going forward.
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. 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 April are as follows…
| SYSTEM | INOVA | OFM | |
| Precision FX | +3.41% | n/a | |
| Chrome FX | -15.89% | n/a | |
| McLaren FX | +13.39% | n/a | |
| Vega FX | +0.47% | n/a | |
| April Average | +0.35% | n/a |
NOTE: May is our first official full month trading at OFM
* 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 broker. We will always have discrepancies between different brokers no matter who they are. For certain systems we have also noticed small discrepancies between larger investor’s accounts (100K+) and smaller investor’s accounts (<5K). This often has to do with the broker’s min position sizes and how smaller trades are distributed or rounded with the allocation software in our MAM/PAMM. Please take note that while our returns are calculated from 1st of each calendar month to the last trading day of the month, our performance fee period (the period in which high water mark performance fees are calculated on), is from NFP to NFP. NFP is the non-farm payroll and is the first Friday of each month.
Our complete Performance Tables have also been updated with the following statistics of interest (broken down by brokerages) on this following page: http://cayoflow.com/performance.html
MONTH-END TRADING RECAP
1. Precision FX – PFX had an “ok” month in April, and was certainly better than the previous month. It struggled to get ahead at times with certain strategies cancelling others out. This has been a common occurrence at times this year. PFX is now a combination of 9 sub-strategies so we need to pay close attention to ensure it does not become over diversified or too diluted. To combat this we have just implemented a “MasterMon” manager to this program. This is a management script custom designed for PFX which is a “master monitor”. It monitors the total basket of sub-strategies and makes sure systems are allowed to be added or are rejected based on possible dilution, risk exposure, or margin requirements. Prior to this it was a quasi-manual task and somewhat of a balancing act, so this overall management of the basket of strategies is a very welcomed addition and we believe it will have a great impact on profitability and overall risk management.
2. Chrome FX – CFX has been a thorn in our side for a long time. It’s like a rock in your shoe that keeps ticking you off when you are out for a run. It has been the single system that has been causing us the most problems and hurting our track record for the longest amount of time. This has always been our most aggressive system, but recently the risk/reward has not been favorable and it’s been a very bumpy graph, without much curve. We have decided that this strategy needs a change of pace, and effective as of today, we are adding in some of our synergi strategies which have been performing very nicely since the start of 2011 (some of our better strategies this year). This system has been inactive for the past two weeks, and we are finally happy to get it fired back up again, and hope to see some improved results. We gained a point yesterday at OFM as our first day back with it, so we hope that this is an indication of things to come. The aggressiveness of Chrome will no longer be as it used to be in the past. It will have a risk profile similar to PFX - more of a moderate/aggressive profile.
3. McLaren FX – MFX had another great month in April, and was the “king of the performance table” again last month coming in just shy of 14%. We have had some big institutional interest in this specific system last month, and it’s not hard to tell why – it’s a solid, long-term performer. There is no telling when the system will stack up some gains, but it can happen very quickly. The last two months have been fantastic and it has banked nearly 30% in profits. Just today it struggled with a few losses, but this of course is nothing that it cannot make up in a day and at any given time during the month. We hope to see the momentum continue with this strategy into May and beyond.
4. Vega FX – Perhaps some of the most exciting news for us is coming from the VFX group. The core team here never stops at trying to improve. When this system took its first losing month in February this caused a big dose of extra motivation, and they have since been “hard at it”, chomping at the bit with some new ideas and strategies to implement to further improve the system. Like most of our programs this is a continual work in progress. And the work being pumped into this one and the progress to date are pretty impressive. Clients may notice a slight down time while the new updates are being implemented, but it should be rather short. This will bring a noticeable change and improvement to the trades being taken at various times. These changes will also allow clients to now view trades in real time as apposed to via the daily statement only. We will be following up with Vega investors later on that front. We will soon have a complete write-up put together for this strategy on our website (we know its long over-due). Our primary focus right now is ensuring everything gets setup smoothly on the PAM, as this platform is slightly different than our others.
INFORMATION AND NEW DEVELOPMENTS
1. Markets – As you can see from above we have been quite busy with some changes to our systems. While staying diversified has been keeping us in overall positive territory, the portfolio has not by positive by much, and despite some absolutely crazy markets lately we are hoping to kick out a few months where all 4 of our systems are pumping out positive returns.
While this randomness between systems may seem to be a bit of a hindrance at times, we cannot escape the fact that the FX market as a whole is extraordinarily unstable right now and it has been progressively getting worse for some quite time now. Any type of predictability or normality have been kicked to the curb for the time being (not just FX, but all markets are getting volatile again). At least with multiple systems we are ending up on both sides of the randomness, and usually more profitable than not. What this means to us, is primarily two things - 1. Until things seem to stabilize we need to get cleverer in how we approach the markets (hence some of our recent changes taking place) and 2. Until things seem to stabilize a little more we need to be more cautious than aggressive. We speak with many of our clients who are self-directed traders themselves and have been feeling the struggles in which many been experiencing. Our only advice in general to this is when in doubt; don’t be afraid to sit on the sidelines until you are comfortable to enter again. Take some time to “unplug” from the markets and attack again later when you are fresh. With that being said, we welcome such challenges, we have seen virtually everything in terms of what can (and will) happen in the markets so its with great pleasure we modify or update our plans of attack sometimes.
2. Brokers (Important) – We hate to be such a negative bunch when it comes to brokers. But they really are our biggest source of grief and frustration lately. It really is a love hate relationship we have with them. We need these guys, and ultimately we are partners to them in a way, as our success very directly depends on them. But it’s a heck of a time working with them sometimes.
We have mentioned this to some of our other clients already, but Forex brokers have to be the trickiest brokers in the world to work with! Typically you are being screwed by them (pardon our language) even if you don’t know or even think you are yet. It’s a tough industry and as we just mentioned they account for such a huge part of the degree of success you will achieve or not. Think of them like a casino (the house always wins). Your profits really depend on being constantly aware of this fact (that your being screwed) and accepting it, and keeping on top of how bad or how often it is so that essentially you will get screwed less than the next guy and hence become a tougher target to screw around, and so that the bank/broker will screw the easier targets first and more frequently. It’s a sad sad state of affairs, but more often than not it’s very true, and the task of finding a broker to give you everything you need is extremely tough in itself and you will likely have to “settle” on something. If you are an average retail trader who plugs away at his own thing with low maintenance trading, you will be fine for a while, but eventually get bled dry. It’s a full time job staying on top of these brokers, and it’s all based on relationship, incentive, and trade volume. Without solidifying these aspects you are a pawn at their game (doesn’t matter if it’s an ECN, STP or Market Maker) and will eventually fade out how like most traders do. We know that is not an overly positive statement, but it is our very serious opinion on it. Even if you have a good and honest broker, there is no guarantee that they will remain like that forever (hence our decision to cease trading for the time being at Sparen).
So on that note as most of you know, we have ceased trading at Sparen until the retail exit has been over and done with, during which time we will close down our operation there altogether. They have been monumental in our progress and growth to date, but ultimately we respect their decision to deal with institutional only and similarly it is also time for us to move on as well. They have since placed our PAMs onto a retail feed, which is quite detrimental to our style of trading. Our April returns were at Sparen were -2.49, +17.75 and -19.93 for PFX, MFX, and CFX, each of which should have traded much better than than that on our original feed, hence why we will cease trading here until the retail exit has completed. The good news to this broker rant, is that there are more and more people out there realizing what a frustration it is dealing with FX brokers, and as a result there are new ones popping up all the time (at an alarming rate). I would say that most of them are bucket shops or white labels, but we do see some good ones getting setup by traders themselves who are tired of getting screwed over. But one should never think they are impervious to any of it. The big banks and LPs are screwing each other, they are then also screwing the prime brokers, and they are in turn screwing the institutional and retail brokers and its all rolling down hill. So in the end, as we mentioned at the start of this rant, you are likely getting screwed no matter how you look at it (even if you don’t know it). But as long as things are working and you are able to profit, that is what matters. Our advice to other traders is to try to go as high to the top as possible to get what you need (cut out the middle men). Negotiate what you need to be successful (it’s all negotiable). Keep an eye on everything (don’t give ‘em an inch or they will surely take 1000 miles) and always keep testing and try to stay ahead of the curve. What works for one trader may not necessarily work for another. We are quite happy thus far with our two primary broker selections and hope we do not have to look for others for a very very long time.
3. Monthly to quarterly Performance Fee Periods – Done deal! We will start at the end of Q2 (so it will be in effect for July 1). This will work out to be better especially for all our long term clients as you will now have a 3 month compounding window for funds to grow and compound without them getting chopped down each month by the monthly performance fee. We do not want to heavily enforce this, or lock anyone in, nor do we want to charge penalty fees for people who withdraw more frequently before their fees are deducted. But for people who do need to make withdrawals between the quarterly periods, we will have accounting at our brokers deduct the required performance fees from the account before the withdrawal is processed. We hope that this results in a little more dough in our client’s pockets over time. We benefit ourselves as well in that we can focus more on trading than month end audit and accounting stuff which is quite a timely process, especially for one of our partners in particular.
SUMMARY AND GOALS
We are happy to report a positive update and profitable month once again this month to our clients. Although we didn’t set any new records, we had some of our systems perform very well this month (most notably McLaren) others were poorer (Chrome) but overall we came out in good shape with our diversified approach. As you can see with some of our recent changes and moving to quarterly cycles we are shifting more and more towards value trading and long term stable performance. The last thing we want to do is start treating the FX market as a “get rich quick” scheme as the vast majority of people unfortunately do (especially when new to it – we are guilty as charged here too). With that type of approach some make big returns fast! But the majority burn out.
As we have mentioned in our previous updates, some of our systems may from time to time go through periods/cycles where they struggle with market conditions, the diversified approach keeps the “boat afloat”. We don’t claim to know it all, but this has proven itself to be the best time-tested method to mitigate the risk of overall loss. Our primary focus is on longevity above all us, and the steady and gradual growth of our equity has been best achieved through proper non-correlated diversification.
We are looking forward to heading into a profitable month ahead of us. 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 (http://cayoflow.blogspot.com/) 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.
Warm Regards,
The CayoFlow Team
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