We hope this newsletter finds you well as we enter into the 2012 trading year full swing. We have some important news, some new developments and some goodies to share and discuss with you this month so we urge you all to read through this message in its entirety.
January was not quite the bang that we wanted to ring in the New Year with. This was a tough very tough month with the volatility of people re-entering back into the markets, and many other people we know had a tough month this month, including ourselves. We ended up with 2 of our 3 systems in the negative, and one in the positive. PFX took the largest hit, some of which was due to a technical problem which we will explain below. McLaren was our one positive system this month, and is now running in a 6 month winning streak now! Since McLaren’s changes in August, it has not yet lost a month, and is proving to be one of our most powerful and well diversified systems. We are over the quarter mark of running our systems unchanged, so will be making some slight tweaks to the Vega and Precision strategies over the coming month for some improvements to hopefully bring them a little more inline with McLaren. We have some interesting information on this below, especially with regards to VegaFX.
We must remind people once again the importance of diversification when investing in the FX Marketplace, and averaging the risk around by utilizing our multiple trading strategy approach. Our results for January 2012 are as follows:
SYSTEM | RETURN |
Precision FX | -12.05% |
McLaren FX | +3.18% |
Vega FX | -2.36% |
Average | -3.74% |
* 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 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 will also be updated on the following link: http://cayoflow.com/performance.html
MONTH-END TRADING RECAP
McLaren FX: MFX had its fair share of challenges this month but still squeezed out a profitable return of 3.18% which was our only profitable performer in January. This past summer (starting in August) McLaren had one of the biggest facelifts it has had in some time and hasn’t looked back since! In the past 5 months (September 2011 – January 2012) it has banked a compounded return of +54%. This is in our view a great return given the short period of time, the risk being taken with the system, and the market conditions we have been faced with recently.
As some of you know, we have been a little selective on opening this particular strategy up to new participants. This is mainly due to us wanting to preserve liquidity with this system, as we have 2 rather large institutional investors we are trading this for. However, we have since separated the two institutional clients from our PAM clients, and should not face any problems getting filled with this system. Furthermore, we will soon be running this at our new brokerage as well, and we will have a long, long, long way to go before we reach liquidity problems there. This system is open to new eligible participants at our current brokerage, and soon at our new brokerage, where we expect performance to be noticeably better. There are no changes planned for this strategy during this quarter and its working perfectly fine as it is so…. “If it is not broken we aren’t going to fix it!”
Precision FX: PFX has caused us some problems with one of the sub-strategies, both late in January, and also early in February. We have just finally finished trouble shooting this and have found an issue in that one of our systems reads data directly from Fortex yet trades on MT4, and we were finding some problems and discrepancies between the two platforms, but have since corrected this issue. This discrepancy caused a particular sub-strategy to essentially take 12x as many trades in one series as should have been taken. This happened once in January, and once in February, causing a 3-4% instant DD each time this occurred. This has since been corrected, but in addition to this, we will be implementing some changes and fine tuning this strategy a little during this month, before letting it run for a quarter uninterrupted. We are busy running some models and back tests before further implementation which we believe will bring PFX (our longest running system), some good fortune in the months ahead!
Vega FX: VFX has been causing us to scratch our heads the last few months as well. Results have been rather stagnant with small net losses the last couple months. The ironic part is that the strategy is performing very well on other brokers. You can see for example where we have it running in parallel at another brokerage here: https://www.myfxbook.com/portfolio/vfx--cfh-markets/177233 where it has not lost a month yet since we started the comparison test in Sept. There is one small sub-strategy running on the OFM accounts that aren’t on the parallel account, but it has only added profit to the OFM accounts. This has been very frustrating for us, but we believe that we have identified the problem. That is the rollover period at OFM, which is very extreme at 5pm EST. This is directly when we are in the midst of a heavy scalping session. Most other brokers have a random rollover period for 1 hour at this time. OFM’s is at 5pm instantly, lasts for about 20 mins, is quite extreme, then returns to normal. But during this period we usually have many trades open, so when the roll occurs the spread widening is enough to trigger some of our tight scalping SLs. We are addressing this by means of a spread filter and wider SL during the roll, which shall return to normal after the roll. Again, our brokerage will not face this same challenge to this degree having so many LPs being aggregated, so we expect live forward performance to be more like the parallel account above, and likely much much better. Clients will have the opportunity soon to transfer funds between the better performing brokerage of ours if they so desire to.
NEW DEVELOPMENTS
In House Brokerage: In regards to this project, we have never been more excited about a single event in a long long time! As many of you know, we have been through a very tough period (with many of you) over the past few years when dealing with brokers. They have been screwing us around, causing us grief, yielding technical problems, out right scamming, and going on under on us as we have seen for the better part of two years. The old adage of “if you want something done right – do it yourself” has never sounded so good to us. Our current brokerage we use (OFM) are decent on many fronts, but there are still a few things we do not like about the feed (rollover issue mentioned above, bridge provider etc...). So we will build and customize our own brokerage, to our own design standards and specs.
During this process, we have really been able to secure something special. Last month we mentioned our pricing was 50-70% better than our competition. That was a typo, and we are approx 50-700% better!! We have in our view the best, and safest bridge, the best platforms (a custom API, and MT4 to start) and we are 1 pip or less on the G10 pairs. Its very rare we are over 1 pip, and that stands for AUDNZD, GBPCAD and all the cross pairs like those, that you usually never see BELOW 4-5 pips at most brokerages. Without sounding too “over-the-moon” about this, there is not one brokerage (both institutional and retail) that can come close to matching our pricing. The ECN powering the feed is very unique in the forex world, and does not package up liquidity as most brokerages do form a single source such as Currenex, Integral etc... The Price Aggregation Engine (PAE) was actually developed by a very very specialised group of AI programmers who run a hedge fund, but who also package liquidity on this custom built ECN (which at the present consists of over 57 Liquidity Providers... and growing)! Two very prominent brokers in the USA have been aggressively trying very hard to obtain access to this, but have been turned down. And at this point in time, we are the only non-bank group with access to this ECN as the core back bone for our trading. This is very exciting for us! We have something quite special and are very happy to share it with our partners, fellow traders, and investors. This will surely make a bit of a stir when word leaks out about the pricing we have, but that is ok as we plan to stay “low key” with this, and be selective on who we work with. We do not have sole discretion over this project, but we are a major stakeholder and have a large influence over how it is used (and also ensure it’s not abused). We believe that there will be many opportunities to be much more profitable than at any other existing brokers. This leads us to our next section…
NEW SYSTEMS!: It is with great excitement, we are planning to offer an existing trader (who has been chomping at the bit to trade on our new feed) a managed account to our client base. We have a good line-up of traders who are very eager to access the new feed. Most are close associates of the partners of the brokerage. This one particular trader has one of the nicer records we have seen in some time. It will cater to the lower risk crowd who want a set ‘n forget program that trades safely and will go the distance for many years. We are sitting on a fully audited track record dating back to the start of 2009 (this is the 4th year in existence) and has only suffered 3 losing months. 3 red months out of almost 40 consecutive audited trading months! Average monthly returns are just shy of 5%. This is a very nice and stable long-term system for serious investors. The strategy is 80% automated with 20% manual discretion. We will present more details as we near the launch. We have a few other great traders and systems who have expressed interest in setting up managed accounts as well, but will start with one at a time. Of course we will continue running the Cayo programs, but we are always happy to offer new avenues for people to diversify their funds and provide new safe trading opportunities.
SUMMARY
We are glad to be in touch on these subjects with our clients as we tie up a few loose ends and implement a few tweaks and changes to some of our strategies. As mentioned this is a very busy but exciting time, and we expect some positive changes and some excellent opportunities to present themselves as a result of this.
Anyone who is interested in learning more, either about our new brokerage and feed, or new managed account opportunities please do not hesitate to contact us at any time with your questions. Thank you to all our current investors for your trust once again in trading with us and we hope to end the month of February on a better note (more positive systems) than January.
Warm Regards,
Cayo Flow Team
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