www.cayoflow.com

Dec 2011 Month-End (and Year End) Trading Report

2012-01-18T00:12:00.000-08:00

Dear Investor,

Our apologies for the delay in the newsletter. Most of our team has been in Asia since the start of the month to iron out some details on our brokerage initiative. First of all, let us wish you a happy new year, whether if it has been celebrated yet or not (depending where in the world you may live). We hope that many of you had a chance to enjoy the holiday season, and were able to relax and recharge the batteries in good company. We believe that 2012 is set to be a very interesting year on many fronts!

2011 however, has without a doubt been the toughest year we have had in our lifespan of managed FX accounts (now over 4 years – which makes us one of the longest running groups still around). This has been a very difficult time for many people (us included) with huge stresses impacting our day to day lives and families and relationships. There has been to much activity impacting the markets alone to even list, but in a nutshell we have witnessed… new 20 year highs and lows on many of the regular Forex pairs, a complete deterioration of technical’s in the markets, coordinated interventions by various governments to alter their currency pricing, panic rational by institutional investors in the market place, major bankruptcies, defaults, frauds and failures including two unregulated brokerages which directly impacted us, major natural disasters from earthquakes to tsunamis causing major socio-economic and environmental problems from riots and protests to nuclear meltdowns and oil spills.. you name it... this was a year many people will never forget (and are glad to say goodbye to).

There are a growing number of people who believe that 2012 is a special year for various reasons. Some believe we may be facing a catastrophic event which will have a huge effect on our way of life. Others believe that the earth is screaming back to us, that it has had enough (reached its tipping point) in terms of pollution and destruction, and its now looking to heal or reset itself. Other groups believe that there is a general shift in consciousness taking place from all of the people around the world, looking for change in what they believe is a broken and corrupt system we are living in. This only scratches the surface in terms of the different theories people have, but one thing most people agree to is that this is a year where many will experience drastic changes in some form. Personally we do not believe in much of the doomsday scenarios, but we believe that this will be a year of positive change, perseverance, restructuring, and new beginnings for many people.

Despite the problems in 2011 we are still kicking around, we have not given up, and we have faced the challenges. Navigating through a year like this has been unprecedented for us and we have learned a tremendous amount of information from it on the trading front (which we detail below), the financial markets in general, and on personal notes as well. While painful at times, these mistakes were not without gain, as have learned so much from it, we feel it has really helped us to grow stronger, and we have many good and interesting ideas this year we would like to implement and we hope to be able to impact many others in a positive way this year.

Our apologies for the length of this letter, but we would like to discuss a few important topics including new developments and goals of ours. Before addressing this, below are our results for December. Overall we are very happy with how the systems performed (mainly McLaren) and here are our official results for December 2011:

SYSTEM	RETURN
Precision FX	3.62%
McLaren FX	18.89%
Vega FX	-1.64%
Average	6.96%

Our yearly returns and stats will be updated in our audits section before the month is out, which is rather complex seeing as how we have a combined annualized return across multiple brokers, two of which are no longer available, so it will be a “stitch work” of annual returns across 3 brokers.

* 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 1^st 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

2011 MISTAKES and RESOLUTIONS

We admit to not being perfect. The markets and events in general this year literally forced us into many tough predicaments trying to survive through all of the craziness. We have thoroughly analyzed and looked deep and hard at many of the problems we encountered this year, and worked closely with other professionals in the industry to truly identify these, and learn from them, and implement winning strategies going forward. Here are a few of the key problems we encountered, and what we have learned and implemented to prevent such problems from arising in the future. We encourage other investors and traders to do the same procedure of hammering these out on paper, as it often takes such a practise to truly identify underlying root problems.

1. Mistake: Adjusting our risk in reaction to market events.
- This is a classic mistake that is hard for many to really evade, and sometimes it is difficult not to justify this one. When a really tough month occurs (for whatever reason) it sends jitters to traders, in particular money managers who often hear feedback from their clients about the performance. In response to this, many believe the best approach is to adjust risk (lower it) because the market is “unstable”, and then increase it when the market has consolidated.

Resolution: The problem in the above scenario is that it’s difficult to impossible to predict when market conditions improve, and they may never really go back to how you would like it to be to work best with your strategy. But the biggest problem with this decreasing and increasing risk is that you often end up reducing risk during the best times when you could recover the losses faster. So you end up actually in worse shape, by being more aggressive when losses occur, and less aggressive during the recoup period. The absolute best strategy here in our view is to set your risk to a comfort level you fully understand, and trust your system to run through the good and the bad. Loss is part of trading, and cannot be avoided, but the ability to recover and recoup losses is very important and should not be hindered in any way, despite the common urge to “adjust” risk after poorer periods of performance. These adjustments are better done on a micro level (i.e., adjusting during news announcements, or major economic events/interventions), but not for extended periods of time. It often takes understanding this mistake for many traders to realise that they were trading to aggressive in the 1^st place.

2. Mistake: Tweaking strategies in reaction to market events.
- This is also a classic mistake that is hard for many to avoid. Especially for auto traders such as our team who have well over 30 strategies to pick and chose from. Much like the above mistake, when a really tough month occurs (for whatever reason) it sends jitters to traders, and may spark the urge to change up and switch to more profitable strategies, not currently being used live, but which are displaying better performance at the current time.

Resolution: This is a pretty common human nature reaction. The problem in the above scenario is that ESPECIALLY in a year like 2011, most strategies cycle through winning and losing periods, and sometimes more frequently than normal, such as this year. Much like the issue above, when you make a change in strategy based on short term performance, you often switch it to what appears to be a better strategy, only to find that AFTER your switch, the better performing strategy starts losing and the old losing one that you removed starts performing exceptionally well! This is the classic case of sitting in one lane of traffic, moving to the faster one, only to have it stall, and your old lane starts moving along. This is an opening scene from a funny movie called “Office Space”. What you end up with in this scenario is jumping from one poor performing strategy to another, and missing out on the winning aspects of them, hindering overall performance. You need to rely and be confident on the data and all meaningful metrics for the basket of strategies you are using at the given time. Crunching the numbers, back testing the models, and forwarding testing provide the data needed to rely on the strategies, and you need to let them run through the natural ebb and flow of the markets, which often includes loosing periods. We have made a FIRM commitment to running strong analysis on our strategies and not making any tweaks until the end of each quarter.

3. Mistake: Risk and Diversification – finding the right amount of both
- We have been down this road a bit this year. Over-diversifying your portfolio and strategies can cause many problems for you, especially when the risk is not properly balanced, and when there are periods of dreadful market sentiment and a deterioration of technical’s affecting literally ALL strategies.

Resolution: We are all aware of the importance of diversification, especially us. We diversify each of our systems with multiple strategies and run 3 systems (PFX, MFX, and VFX) in parallel to one another for further diversification. However, diversifying too much, can often dilute performance (i.e., you can never gain any ground), or it can exaggerate doomsday scenarios when they strike, effecting your strategy much worse. We have really limited our diversification on each system to a few core non-correlating strategies which compliment each other nicely. The goal is to have them perform well in most market conditions, yet not cancel each other out to often. But not being so widely diversified that its impossible to gain traction, or that huge losses can occur when all systems perform poorly at the same time (and they often do, more than ever nowadays). We have made a firm commitment to not diversify one particular system with more than 4 sub-strategies, and to ensure we are comfortable with all worst case scenarios (i.e., if all strategies were to be open at once, and all to hit the max SLs).

4. Mistake: Working with lesser known or unregulated brokers – no matter how appealing.
- This mistake has had a huge impact on us and many investors this year. To our complete shock and dismay and total disappointment, we have had two brokers bite the dust this year. One that we had traded at personally for over 5 years. We believe that there are many excellent smaller or private brokers out there, and there is no guarantee that any brokerage will not run into problems, but with a global financial state like what we have seen in 2011 it is more easy and common for problems to arise, and often certain firms can be affected more than others.

Resolution: In our business, brokers have a huge, often tremendous impact on our systems ability to perform. Certain brokers can provide ideal conditions for various strategies (in particular automated strategies) to execute significantly better than others. Most are even outright crooks, including some of the biggest most heavily regulated ones. But in the end this does not matter if the brokerage has a significantly higher chance to go under. There are certain jurisdictions, regulations, and signs that make this more apparent. We have made a firm commitment to work with only highly regulated brokerages, ECN model brokerages, well capitalized brokerages, and brokerages in reputable financial jurisdictions, no matter how less attractive their trading infrastructure may be compared to other brokers not falling into this model. We have also made a firm commitment to take the trading environment (i.e., brokerage) into our own hands and control, which is something very exciting for us, and that we have been working diligently on since July of last year. This greatly increases our chances of success, and ensures we rely much less on 3^rd party brokerages making us more independent and sustainable for the long-term.

GOALS AND TARGETS AND DEVELOPMENTS FOR 2012

We believe that setting goals and forecasting is a very useful and important tool to success., and feel that meandering through life without a plan is a sure fire way to end up no where. We would like to share some of these details with you in as condensed of a format as possible.

Profit Targets of 6% per month – For ALL systems: This is our net monthly profit target for each month in 2012, for each of our systems. This may be a lofty goal, and you may wonder, why this number? Because this is the magic number that when compounded each month, allows us to double accounts in a year. That’s right, if you deposited 100K, and were able to sustain a flat 6% per month and let it compound for 12 months, you would have effectively slightly more than doubled your account. In fact the actual balance after 12 months would be $201,219.65. But you get the picture. Similarly a 3.5% monthly return would allow us to achieve a 50% growth on accounts. Obviously we cannot achieve a fixed return, and we will not stop if we hit this return early in the month, but if we can average this out, we feel we have a good chance of doubling ours and our client accounts in a year. Some people would not be happy with this. Others would be more than thrilled. We did not achieve it in 2011, but we have exceeded it in previous years. We feel that we are positioned well to achieve it in 2012. It surely won’t be without its challenges though. January is already shaping out to be a rather difficult month.

Risk tolerances of -10%: We do not need to explain this one much more. In the past, people were ok to stomach daily drawdowns of -30% if it meant that they could make 50% in a single month. Today, investor logic has changed due to the state of the financial markets, and we are included in that group. We are not going to chase the aggressive returns anymore with our core systems, and instead will focus on slower, safe, growth of our capital. If any of our systems reach a -10% equity drop in a given month, we will cease trading them until the following month. This is not an automated stop, but a discretionary one by our team, but we feel that this threshold is about the most we and our clients want to see for said profit targets.

In House Brokerage: We have touched on this above and in previous newsletters. We will save the details for future newsletters and the official release, but in summary, we have secured access to something very special (currently not available to any retail platform on the planet). No one is pickier about brokerages than we are. If we wanted to open this up widespread, we would have literally zero competition. We have compared our execution, our depth of market and our pricing against literally every broker, and not only is it better, it is waaaaay better. Upwards of 50-70%. We are average 1 pip on GBPJPY to give you an example of how special this. This creates all kinds of new opportunities for us and others in terms of what we can do on the trading front. However, this is not going to be a wide open retail brokerage. It is being built, and bankrolled, primarily for us and our partners, contacts, and associates, and clients. We will work with various external groups subject to review where we see mutual potential and value. This is something we want to protect and not serve to everyone. We expect very, very good things to come from this for us and all of our existing clients. More details to follow next month.

Safe Haven Fund: This is an idea we have been toying with for quite sometime, and have plans to implement it into action this year. As most of us know, the financial markets around us are in a mild state of chaos. What we are intending to do is structure a regulated fund which allows us to provide an easy way to invest in a plethora of safe havens and resources which will hold and store value, naturally hedge, and grow safely over the coming times. This will be a diversified basket of investments which will include a Forex component, cash in a basket of unique currencies, physical precious metal storage, agricultural land, emerging economies, and other non-traditional investments sought to withstand inflation or much worse in terms of what may stand ahead in 2012 and beyond. Much like our trading, we have learned the hard way over time on a much smaller scale the importance of this, what problems to avoid, and how to focus on security and safety above all else. We are working with a great team on this initiative and of course we will be the “Forex arm” of it. This is an exciting project in which we will keep all investors in the loop on as we move along as it will be something that we will be very happy to offer to people.

SUMMARY

We would like to thank you for your time in reading this newsletter, and we hope that it clearly explains some of the challenges we have faced this past year, what we have done in response to them, and some of the projects we are working on going forward to prevent future challenges from arising and better positioning ourselves for success. We are certainly glad to say goodbye to 2011, and we are welcoming 2012 with open arms and are ready for the challenges which will inevitably come our way at times.

We hope that many of you embrace positive change this year. Please ensure you and your family stay safe this year, especially with your finances, and ensure you are positioned well to “stay invested” while being diversified and out of harms way from various potential problems which we may all innately be faced with this year. With any tough periods we see both challenge AND opportunity! Thank you to all our current investors for your trust once again in trading with us and crossing into a new year of possibilities with us!

Cheers!

Cayo Flow Team

November 2011 Month-End Trading Report

2011-12-07T15:34:00.000-08:00

Dear Investor,

We hope that this message finds you all well as we enter into the final month of the year! And wow.. what a year it has been! One of the craziest and toughest that we can ever recall, from markets in general, to the economy, to crashing brokers, to crises, you name it. We wouldn’t say it’s been just weathering storms this year. It has been more like trying to navigate your way through quick sand, exploding volcanoes, crazy earthquakes, tsunamis, and typhoons, when you are used to just leisurely walks in the park with the odd uphill climb. We would like to discuss a little about our trading moving forward in this update, and also our new brokerage. This is quite important and more details will be found below in this correspondence so we hope you all take the time to read through it.

This past November is best described as a good month, but with a surprise slap in the face at the end. Our average would have been much higher than it is, if it were not for the last day of the damn month (Nov 30^th) where we witnessed a planned and coordinated central bank action to boost liquidity. This was the doing of the Fed, ECB, and the Central banks in Canada, Japan, England and Switzerland etc... This essentially caused us a huge hit triggering many SL’s on most of our systems in a matter of minutes, and up to a -6% loss on both MFX and PFX, which were both wrapping the month up nicely in double digits prior to this. It was a very frustrating way to end an otherwise good month. We are still positive on our average so cannot complain too much. This has been the story of our lives this year. Our final numbers for the month of November are as follows…

SYSTEM	OFM
Precision FX	6.01%
McLaren FX	5.21%
Vega FX	-7.57%
November Average	1.22%

Our complete Performance Tables will also be updated with the following statistics of interest (broken down by brokerages) on this following page: http://cayoflow.com/performance.html

MARKET NEWS

Well, things are getting messy again. It’s going to be interesting to see how things fair out particularly in 2012. Nov 30th was a huge eye opener for us to show that the current state of affairs is not one particular nation’s problem. “We will all go down together” is the general vibe right now. Some of the top experts in the industry say that Europe isn’t facing a liquidity crisis. But that the world is facing a structural solvency crisis in which businesses, governments and individuals have all borrowed money — and made promises — that cannot be repaid unless more money is printed (or, more specifically, until more credit is issued). Rather than fill the newsletter for those who are already up to swing, or those who don’t care (hope not to many as this effects everyone whether they “feel” it or not) so here are some of the better highlights from the last few days on what’s happening around the world on this topic ...

1. Euro doomed from start, says Jacques Delors:
http://www.telegraph.co.uk/finance/financialcrisis/8932647/Euro-doomed-from-start-says-Jacques-Delors.html

2. Banks Ponder on Scenarious if Countries Drop the Euro: http://online.wsj.com/article/SB10001424052970204826704577074773960813432.html

3. Time of Reckoning for the Euro Zone:
http://finance.yahoo.com/news/time-reckoning-euro-zone-200335895.html?l=1

4. Why do Foreign Banks Need Dollars?
http://economix.blogs.nytimes.com/2011/12/01/why-do-foreign-banks-need-dollars/

5. Germany is the ultimate victim of EMU
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013600/germany-is-the-ultimate-victim-of-emu/

MONTH-END TRADING RECAP

There is not much to report on this front, which wasn’t already discussed above. This month 2 of our 3 systems performed remarkably well, with the exception of the last day of the month. Vega has been the system struggling a little more than the others lately. Last month we saw a 15 day stagnant stretch on the EUR/USD pair, which had a huge effect on Vega. This system needs market flow to do well. When there are no defined trends or breakouts its very tough for 2 of the 3 models in it to be profitable. The scalping component will always do well in this scenario. Other than that, the trading went as expected. We had some terrible whiplash spreads from our broker that caused some problems, but since they are passing things through directly to us there is not much we can do there. This month is looking to be off to a good start as well, particularly on the McLaren FX front.

BROKERS

We will update individual clients after our month-end newsletter as to the current state of affairs with our old brokerages. Things are moving along quite well with our own brokerage and we are looking to be live and moving full steam ahead with this in the new year. There has been a tremendous amount of time and effort and money and help poured into this, and we feel we will be securing a very nice part of our future in the FX industry with it. Our current brokerage (OFM) is filling the gap well for us right now, but our early testing shows we can be much, much, much more profitable with our own setup, as the technology behind it is leaps and bounds ahead of our current one (and most others for that matter). We are essentially piggy backing off of a lot of hard work and a lot of spent dollars, and the fact we will have exclusive access to this on a retail scale, be the only firm with an MT4 platform plugged into it, and the depth of market available is going to give us a huge edge. Some of you have been helping us with the beta testing. Others have been asking many questions. The most common one being, is this broker owned by Cayo? No, it is an entirely different venture altogether. Some of our partners are a major stake holder in the project, but it is separate from what we do here, and we have different partners involved as well. As we get closer to being ready we will explain more. For now we are working our tails off on it, to make it the best it can be, and take our reliance out of the hands of other 3^rd party providers entirely, and build a safe haven for us to trade and grow our funds for a long long time. We have simply been through to much crap to rely on others to clear our trades.

TRADING FORWARD

Current Trading Risk: Some of you have been emailing us asking about our returns and why we are not chasing huge numbers like we were about 2 years ago. This isn’t the first time this has been asked. But we feel we can better address this now, more than ever. There are really many reasons for this. Much to do about risk, changing markets, and investor mentality. But we believe the whole market, for investment, has changed in the last couple of years, especially this year in particular. Certainly when we were running our early programs all those years prior to now, it was all about the returns! Clients wanted exceptional returns of 100-200+ % a year and they were quite happy to eat an occasional 30% drawdown to achieve this. This was when retail FX was a little different and a little newer to most people as well. Now, with the global credit crunch, and the craziness in the markets, everyone just wants their money back. It has got to be a play-off, with returns versus drawdown.

Previously it was all about shooting the lights out and taking bigger risks, but the vast majority of clients just don’t want the drawdown risk at the moment. It is more about the steady return with a controlled drawdown. Basically, these days, it’s the risk before the return. If you are the other way around, you are an exception these days. This is not just in FX, but in markets the world over and across all asset classes. With brokers, institutions, banks, govs, and entire countries not managing risk properly we have seen some crazy things happen lately, which we want to avoid altogether. This includes small scale (like what we have seen with Sparen FX) to large and extremely large scale (like what we have seen with MF Global). So will we be targeting large numbers going forward? Not like in the past, and not with our current systems. If we approach intra-monthly draw downs approaching the 7-10% mark, depending on the system, we will most likely turn off the system for the month. Our profit targets will not be as high as they were in the past either. We are looking to target the 5-10% range. We have potential with the current systems to see 20% ish per month on good months like last month. But not much higher. We want to be clear on this to our clients and prospective clients so as to not provide inaccurate expectations amongst people. We may in the future roll out an aggressive system for those who keep asking for one, but we will wait to see how things transpire in the New Year. We try to optimize our risk for moderate gains, which cater to a wide audience.

Diversification: We have mentioned this quite often in the past, but thought we must bring this up once again, as it is more important than ever lately. Our systems are designed to work together. By this we mean they are meant to cover all types of market conditions. We have never forced this upon our clients. Instead we leave it up to them to do. We explain to them how it works, and for most of them it clicks and sticks instantly. But we still see some who chase after each winning system monthly (or even in shorter intervals). These constant adjustments effect the outcome largely. Our strongest recommendation remains the same. To split your funds across all of our systems equally, allow them to work as one synergistically, and let them ride for 3 months before making any adjustments. This has proven to be the most time tested, safest, and most profitable way of utilizing these strategies to make money in the markets. They have been tweaked and modified and have come a long way to where they are today. So even though they are separate, it is best to think of them as a basket of essentially the same synergistic product. We see the mitigation of risk all time between systems. i.e., one strategy is short euro dollar, and the other is long. This is essentially a hedge between systems. So if you lost on one, the other should help to offset it. Keeping net balances across the systems more level. This happens in single systems as well, but to a larger part across the separate systems.

New Strategy: We have been working behind the scenes to bring a 4^th strategy into the mix that is entirely different than our current ones and adds further diversification. This is near complete, with just a longer live testing period going on. Once we are ready to go live with it, it will officially be one of the most simple and effecting strategies we have, and, that we have ever used to date. Sometimes simple is good ;-). The system trades the G7 pairs, and places about 40 trades per day following a very simple and effective form or pattern trading, which is proving to be very nice to us, on both back test and live forward test. We will keep all our clients posted on the progress and launch date for those interested in participating.

SUMMARY

We are glad to be in touch on these subjects with our clients as we feel the direction of the markets is changing day by day and month by month. It is a difficult market to navigate these days. We need to expect rough patches in the market, and not panic when they strike and believe in our strategies (which we do more than ever).

We know from our live and back-test process and the simulated results that we’ve got a good basket of strategies. Our tests and research and modifications are all done for a reason. They allow us to benchmark our live performance. So as long as the models are performing well within their KPIs and within our benchmark parameters there is no reason to change anything. This was our problem throughout much of this year, as soon as we seen a model not working for a week or a month, we went to tweak it, which of course ran the risk misfire the following month. This was an obvious reaction to what we saw this year. But we have matured quite a bit in our trading because of it, and continue to do so. We only make adjustments quarterly now when warranted.

We have been through a lot with many of you this year. It has not been a year without some very tough issues. But we will continue learning and pushing forward (we are a stubborn bunch). This brokerage we are working on is a very new and exciting venture for us which are quite excited to share with you. But we are still traders at heart and will always be doing what we do on the market front. It will just be done in a safer and more profitable environment now which is only going to make things better.

Holiday Trading: We typically play this by ear and quite often go full steam til about mid-month, and then cherry pick trades throughout the holiday, firing back up full steam in the near year. Whether we do the cherry picking and to what degree will largely depend on how things are shaping up. Historically speaking the week between xmas and new years has been THE most profitable week of the year for scalping, but terrible for other strategies. So if you see few or no trades taking place on any strategies at anytime this year, it will be normal, and should resume as usually in the new year. So we will get a plan together for this month, and stick to it, and touch base with you next year!

We would like to wish you and your friends and family a warm holiday season this year despite all the things that have made 2011 a outlandish year for the masses. We hope you have time to enjoy some of the finer things in life with those who are close to you.

Warm Regards,

The CayoFlow Team

October 2011 Month-End Report

2011-11-03T17:23:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of November and winter begins to come upon many of us in the northern parts of the globe. We will keep this update short and to the point. This month we are glad to post our numbers as we have a full deck of positive numbers which is a nice sight to see in the current economic environment. We have stopped trading at Inovatrade brokerage half way through the month (more details below) which is why you see the discrepancy in returns, but still ended up with a positive posting. Our numbers for the month of October are as follows…

SYSTEM	OFM	INOVA	Broker Average
Precision FX	16.91%	6.82%	11.87%
McLaren FX	19.40%	4.66%	12.03%
Vega FX	8.04%	4.37%	6.21%
August Average	14.78%	5.28%	10.03%

* 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 1^st 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 with the following statistics of interest (broken down by brokerages) on this following page: http://cayoflow.com/performance.html

MARKET NEWS

Without a doubt the biggest news this past month has been the Greece saga (surprise). This has in our view been dragging on for way way to long. There is something new changing every day, and even multiple times per day (such as today). While this has been dragging on for a long time, many are describing the current state it’s at today (in all it’s severity) as “Greece holding a loaded pistol to the temple of the global economy”. The constant back and forth has been wreaking havoc on the most liquid FX pair (EURUSD). There have been some crazy sell-offs and whiplashes, and nearly all of them have stemmed down to the Greece saga and the Euro zone in general. We are not going to get into the whole politics of it as we think its ridiculous. We think that the Greece episode is just the beginning of Europe’s problems. Greece is just going to pave the way to what will happen to the other vulnerable Eurozone economies like Italy and Spain and Portugal for example.

The ironic thing about governments going bust is that it has been happening for centuries. Default is nearly as old as the monetary system itself, and history is ripe with examples of it. For example, Spain has defaulted 15 times since the 16th century. Greece has defaulted 6 times since the 19th century. Portugal has defaulted 8 times since the 16th century. This crisis however is much more severe in that many countries are all connected at the hip this time around. It’s basically just a big game of musical chairs that won’t end, and once the music stops, a country is left standing in the dark. We believe this is only the start. When Spain, Italy, Portugal, and even Ireland's debt crises’ speedily arrive, it will be dealt with just the same way: Print -> Lie -> Borrow -> Deceive -> Deny! We of course hope that that isn’t the case but cannot see it otherwise.

On other notes, the G20 meetings are under way, and while there were to be many agendas, it really has turned into a G-Europe conference. The western governments and other nations are likely sitting on the sidelines with their jaws on the floor. While this is supposed to address global issues, reports say it has a large focus on the Greek crisis and other Euro troubles. We are keeping a close eye on how all of it has been and is affecting the markets.

MONTH-END TRADING RECAP

Without getting into to many details, we had for the first time in a while a rather smooth sailing month of trading. Everything worked. We had no technical problems. And markets were friendly to us. This month we are seeing volatility pick up a little again, but it’s still early. Our guess is that this Euro saga is going to cause some roller coasters. We are up already with PFX and MFX, and down slightly with VFX. Again, we cannot stress enough to traders to diversify their funds across more than one system. Diversification always keeps the ship afloat. In month’s where we are positive across the board, its not much of a concern but during periods where drawdown is encountered it usually smooth’s the ride a little. DST has went into effect in Europe, and goes into effect for most of North American markets this Sunday. This usually has an impact on our trading, especially our scalping which is time dependant. We usually see a little turbulence at the start, and then settling out after that. We will again be keeping a close eye on things.

BROKERS

We are now officially down to our last man standing – OFM brokerage. We trade some private accounts at CITI and Swiss Quote, but for the most part we are keeping everything at OFM. We officially stopped trading at Inovatrade this past month. This has been a troublesome and crazy time for brokers. One of the largest Brokers in the USA (MF Global) has just went bankrupt! The company filed for bankruptcy, just days after posting a $192 million quarterly loss and disclosing $6.3 billion in bets on European government bonds. There are some heads rolling due to this, and it ranks up there one of the larger bankruptcies in the history of the US. We know quite a few people who invested there. As many of you know we have also stopped trading at Sparen FX and are taking the appropriate measures there. We have also just this week decided to stop trading at Inovatrade. We do not know what to expect in this situation, but we cannot continue to trade at a brokerage which does not communicate with us. It’s like flying an airplane with a blindfold on. We have heard various different suggestions and rumors as to what is happening here. We have heard that communication cannot be resumed until the Panama securities commission has completed an internal audit on the company. We have also heard that they have folded shop. We do not know much more at this point, only that we cannot continue to trade there without having full communication and accountability. Our primary point of contact Mr. Michael Alcocer has not been responsive to any of our attempts to speak to him about the status of the brokerage. We will continue to press for information on this, but in the interim have ceased all trading activity there, and highly recommend other parties trading there to follow suit. The brokerage industry has been an absolute mess in 2011. No doubt some of the global economy has been responsible for much of it, but we also believe there has been some terrible mismanagement with some of these other firms. We are doing what we can to get some resolve and filter out any more potential problems from arising in the future.

SUMMARY

To re-iterate from last month, the best news we have lately is that we are for certain setting up our own brokerage. It will be done right. It will be good. And it will be everything we ever wanted in a brokerage. For years brokers have been our biggest obstacle, hurdle, source of frustration, and root cause of lost funds. We are following the rule of “if you want something don’t right, you need to do it yourself”. We will provide more details as we near completion. This is a time consuming and costly endeavor. But we are making some good strides on this front, and are getting rather close to completion and believe we will have something very special when all is said and done. This will be our “in house” setup where we will not be reliant on other FCMs ever again. In the meantime we are working on bringing some resolve and fixing the problems with the current ones, and implementing better longer-term and sustainable solutions. Our trading programs are running as they should and we have stopped the constant tweaking of them. This is a very tough market at present, but we will keep the battle going strong on our end. We will continue to monitor our systems and take what the markets give us.

Please visit our website and blog (http://cayoflow.blogspot.com/) for frequent updates and newsletters 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

Sept 2011 Month-End Trading Report

2011-10-13T20:45:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of September. Our apologies for the delay, as mentioned previously we will shorten our updates down significantly. We will keep this update short and to the point as we have a lot on the plate to deal with on the brokerage front.

Markets are again all over the place. The Greece saga continues to worsen. Things continue to worsen very much so in the entire Euro Zone with Spain and Italy popping up as big dots on the radar. The Occupy Wallstreet movements are taking over many cities the world over from Australia to Canada to much of Europe. Rather than write our own commentary we figured we would share some links to some good videos and articles on the subject with you this time around.

* A MESSAGE BY “ANNONYMOUS” FROM THE OCCUPY WALL STREET MOVEMENT:

http://www.youtube.com/watch?v=j5xRaQnHGA0&feature=player_embedded&noredirect=1

For those not following this, we found this particular video to be outright “bone chilling” and quite CREEPY! But they send a very strong and clear message in this clip. This was sent on October 1^st, and the movement has changed and picked up quite a bit of momentum since then.

* HOW TO EXPLAIN GREECE TO A COMPLETE IDIOT / POLITICIAN:

http://www.sovereignman.com/expat/how-to-explain-greece-to-a-complete-idiot-politician/

This is a message written by Simon Black at Sovereign Man. This is very good and puts the Greece debacle into a very clear and simple perspective for people to understand.

* IMF ADVISOR SAYS WE FACE A WORLDWIDE BANKING MELTOWN (how it would affect the everyday person): http://www.youtube.com/watch?v=6UGDTtqklSo&feature=player_embedded#

Dr. Robert Shapiro who advised Presidents Clinton and Obama and who currently advises the IMF predicts a cascading meltdown of the World's banking system starting with Sovereign debt in the Euro Zone, affecting the UK then finally bringing down the global banking system. This clip was aired October 5, 2011 on the popular News show Newsnight with the corporation's top interviewer Jeremy Paxman.

As most of us can see tensions are still sky high. FX Markets are tense, but showing small signs of regularity according to the “gurus” who claim they really know about this kind of thing. People seem to be awakening to many of the problems we are all facing (not just Greece or the countries in the spot light right now). Are we are on the brink of some kind of change? Or some implosion? Or do we have a ways to go before we hit the rock bottom? Its tough to say and everyone has a different perspective on it. We always say its best to be safe, and be prepared, but not paranoid either. Times are changing and changing very fast. We feel that something must give (aka break) before we see any kind of true improvement on this whole debt situation – the world over. When or to what degree that is, we are still unsure.

Last month’s trading has been “OK” depending on the system and the brokerage as we had some very large broker discrepancies for various reasons. Trading continues to improve quite nicely into this month. Our McLaren system is approaching 20% already this month, and the other systems are positive as well. We are the most dedicated and stubborn group of people though and will never stop tweaking, testing, trying to improve, and trying to eliminate our problems until we get things to the best possible place they can be.

Our returns for the month of September are as follows…

SYSTEM	OFM	INOVA	Broker Average
Precision FX	-6.47%	5.87%	-0.30%
McLaren FX	0.12%	-13.20%	-6.54%
Vega FX	13.69%	-0.49%	6.60%
August Average	2.45%	-2.61%	-0.08%

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

Without getting into to many details on this update, we had a lot of struggles last month again. We spend a large portion of the month having our systems re-coded from one language (an older one) to a newer one. We had found some errors in the strategies that caused some very minor problems and discrepancies this month which have all since been rectified. Our new language for the systems will take some extensive testing but we will eventually migrate things permanently. Our brokers also had quite a few problems from their liquidity providers this month, in turn causing us probs. There were a few misquotes by several large banks last month (namely Goldmans), which caused huge erroneous market moves that had to be audited and corrected. Thankfully our brokers did this in a rather swift fashion. Our Vega system ran perfectly well at OFM brokerage, but had troubles at Inova. This is turning into a very nice stable system, and the same goes for all 3 now. They are on lower risk, and are set to just “trade” through whatever the markets throw at them. We are off to a good start in Oct, and hopefully without any storms rolling in we will end this month on a much needed nicely positive note.

BROKERS

This is always our section where we rant and vent like disgruntled employees who hate their bosses. We are so frustrated with brokers we are going to permanently give it a red heading color until we have officially removed all the scumbag brokers from our life (the vast majority of them are scumbags) and only have good ones we are associated with. We are sick to death of dealing with brokers. They suck up more time and energy from us than any other component of our lives. As many of you know, we are have started to take legal action against Mark Edward Rice the director of Sparen FX, who has still not returned ours, our investors, and virtually every other trader, IB, and account manager who has ever traded at Sparen FX our hard earned funds. This has been one of the single most frustrating episodes we have been through in the past 4 years. It is quite a big deal given the amount of people involved. But we are not about to sit aside and let him get away with this at least without a fight.

In other news, ironically, and almost unbelievably actually, things have seemed to have gone from bad to worse with Inovatrade, another Panamanian brokerage headed by Mr. Michael Alcocer. Customer service has been almost non-existent lately; emails and phones are not answered (or take very long to be answered). Many wires are pending with longer delays. We are looking into the root causes of the delays, and are hoping we do not see them follow the same path of Sparen FX. We have our hands completely tied at the moment with what is happening with Sparen. But should this not improve, we will certainly follow suit here and take action. We are planning to travel to visit them in person very soon. The good news is that Panama is now adopting a form of regulation for FX which should really help things in the future. A penny short and a day late perhaps for some firms. But it is a step in the right direction for the jurisdiction nonetheless.

One Financial Markets in the UK has been a true pleasure and the breath of fresh air in this whole brokerage mess. Never again will we ever so much as look at a private brokerage. I know that there are some good ones out there. But it is not worth it in our view for the potential of what can happen. The original draw which attracted us and many other systematic traders to private brokerages in the first place was essentially their feeds (usually unmatched by any regulated brokerages). While they could often provide an extremely high quality feed, when there is no regulation over how they run the internal workings of their business, other people, or greed, or mismanagement, or misappropriation seem to eventually set in like a cancer to many of these firms. Because of this we are presently only working at OFM in the UK who have been quite good to us, and accommodating, despite regular brokerage problems which always seem to happen from time to time.

I suppose the best news in all of this is that we are for certain setting up our own brokerage. It will be done right. It will be good. And it will be everything we ever wanted in a brokerage. For years brokers have been our biggest obstacle, hurdle, source of frustration, and root cause of lost funds. We are following the rule of “if you want something don’t right, you need to do it yourself”. We will provide more details as we near completion. In the meantime we are working on bringing some resolve and fixing the problems with the current ones, and implementing better longer-term and sustainable solutions.

Please 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

August 2011 Month-End Trading Report

2011-09-14T13:52:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of September. Our apologies for the delay, as mentioned previously we will shorten our updates down significantly on the monthly updates and get into more details on the quarterly updates.

In the last month we were positive across the board, well unfortunately in August we were negative across the board, in what ended as being a “month from hell”. They say history sometimes repeats itself; well we are here to tell you that the month of August was like October 2008 all over again. This whole year seemed to lead up to August as grand slam of financial anarchy. Aside from the meltdown in the markets in August, murphy’s law struck us in so many ways it was ridiculous actually ridiculous, and makes it especially painful for us to post a -13.06% broker and system average for the August (our worst yet this year). We had not only chaos in the markets to deal with, but we had many technical challenges this month (server problems, license problems, and brokerage problems) which caused quite a discrepancy in our results from one broker to another. Unfortunately this caused us to witness some of our max monthly thresholds last month in terms of negative performance (aka – our worst case scenarios) which we never like to see.

So on the news front, after August we thought things couldn’t get any worse in terms of the USA and most of the Euro zone, and then unbelievably the Swiss decided it was their turn to “join the party”!!

If you didn’t hear the news, in the first week of Sept the Swiss National Bank surprise announced that it is putting a ceiling on the Franc's appreciation against the euro - effectively abandoning its economic sovereignty and putting its future in the hands of corrupt and inept bureaucrats. Due to this news, in the FX market the Swiss Franc virtually fell off a cliff, dropping almost 11% in a matter of minutes (literally). We watched in awe as the USD/CHF moved over 700 pips in about 30 mins! Some people surely made huge money from this, while others likely lost it all. Gold priced in Swiss francs jumped about 10% in 30 seconds as well. Thankfully we were not caught up in any of this and were sidelined. Either way this is not good news and the Swiss government has basically told the world that they will print as much money as it takes, and buy up as much crappy sovereign debt as they can, to competitively devalue their currency. Many who thought the Swiss Franc to be one of the last solid currencies have now agreed that precious metals are all alone as one of the only real forms of sound tangible currency.

So, it's been a tough few weeks for many traders for many different reasons in the markets. It's not been a great summer in general this year for most of the major currencies with the unprecedented financial turmoil back and forth in the US and Europe. Then factor in the riots, and natural disasters and it's certainly been a huge pill full of events to swallow lately!

We know at times like these you hear droves of people coming forward to bark at how terrible a time of the year it is to trade. We don’t think this is a cover up for bad results, and we certainly do not look for excuses in our trading performance. But August historically is a poor time of year to trade in the FX Markets, and this one just happens to have been the worst one we have ever seen to date. We only hope things are FINALLY settling down now.

But it is not all doom and gloom, and we do have some changes and good news to report which we will explain below. But we are coming up to a new period now (September to December) which is the tail end of the 3^rd quarter and blunt of the 4^th quarter which historically we have found to be a pretty decent time for trading. There are a lot more players (and hence liquidity) which returns to the market from the summer holiday, and this normally gives us a good run of reliable price pattern formations and proper trends. This coupled with the fact that we believe and really hope the financial drama has reconciled for at least a little while; makes us believe that by proceeding with caution we should see some good conditions ahead.

Our returns for the month of August are as follows…

SYSTEM	OFM	INOVA	Broker Average
Precision FX	-15.24%	-25.03%	-20.14%
McLaren FX	-14.04%	-2.70%	-8.37%
Vega FX	-0.41%	-20.93%	-10.67%
August Average	-9.90%	-16.22%	-13.06%

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

Without getting into to many details on this update, we really had a lot of struggles last month. We dedicated countless amounts of hours and hours to trouble shooting a few problems, which turned into a huge time drain for us. This is the nature of the beast however, and nothing every runs smoothly forever. Our systems were causing us problems after an applied update. Our trade servers were crashing also after an update for quite some time without reason, and one of our brokers (Inovatrade) went through various technical challenges too. When all the chaos landed on and off in the markets, it made for a month we really would rather not ever re-live again. But we plowed through these issues and with some help we were able to eventually solve all problems and get things well under control into Sept. We have some news on this front in the section below…

IMPROVED TRADING PLAN WITH OUR SYSTEMS

We take our trading very seriously, and we went last month to meet in person with a very high profile and well respected manual trader. During his career he traded various instruments on Wall Street for multiple institutions, and now he teaches and consults and has always been a big role model to us as we have spoke with him in the past. We ended up meeting with him in person last month, and asked for him (and paid for him) to review our full list of strategies and systems. And he did with a fine tooth comb (took 3 days). We conferenced in our programmers and partners, and it was a very very productive and informative session.

One of the most important things we identified from this workshop was that the majority of our strategies are actually really sound and very well put together. He identified that our biggest problem was not in the strategies themselves, but was more in the rate at which we changed our strategies around and on what basis for doing so. What we have essentially been doing this year is changing strategies around once we encounter a tough period, and then move on to implementing other strategies which have been performing well. What happens in this situation, especially with volatile markets, is that when moving to the best performing strategies at the current time, you usually end up moving to it when it is about to struggle (based on that all strategies go through performance cycles – since the markets themselves go through cycles). Meanwhile the strategies that you switched FROM due to poor performance start to begin performing well again. We of course know and understand this concept quite well, but have not been the best at implementing it ourselves this year. Probably because markets have been changing so much and so drastically, we have been fighting hard to adjust and adapt.

We do not claim to be the best in the world at what we do, and strive to keep learning, progressing, and improving so this was a nice eye opener. What we ended up doing in terms of implementing a new go forward strategy, was to get assistance in sub-diversifying each strategy, turning down the overall risk, and letting the systems run hands free for a longer duration of time. We picked up an additional automated strategy used by our contact as well which was a nice added bonus for us ;-). But for the most part our systems are better diversified, are “set n forget” mode on quite a bit lower risk, and will have set checkpoints in place on when we may look to change a strategy around. Overall we think that this is going to be quite a nice change to things. These systems will ride out through the good and the bad, but it will be far less of a rollercoaster ride, and we should catch some nice winning streaks through time.

BROKERS AND NEW DEVELOPEMENTS

While this is normally the biggest section of our updates and our biggest source of complaints, we are going to spare people from that time and time again. We have come to the inevitable conclusion that if we really ever want to be long term profitable, and make our lives easier, we need to open our own in house brokerage – and after much thought, this is exactly what we are doing!! No one has been screwed around more, wasted more time and effort and money, been through the ringers more, and witnessed the worst services and dirty and illegal tricks brokers pull than us. It makes our job very very very tough. We are fed up, and have decided to bite the bullet and move into doing our own clearing and trading. We are a little ways away from this but we are fully committed to it, and have begun to lay the ground work.

In the meantime, Inovatrade has increased their spreads by 2 pips. Things have slowed down there in terms of their service and wires. We know some of the reasons for this but it seems they often have a hard time keeping their ship in order. OFM on the other hand has been amazing and continues to improve! Their feed improves, their service is impeccable, and they are a very well known and heavily regulated UK based brokerage. Until we have our own setup this is where we strongly urge our clients to open accounts. For Sparen FX clients we will be following up on our most recent email very soon. As you can see from this update we have had quite a few tasks on our hands, but we have not lost track of this and will be following up shortly.

SUMMARY

We are quite happy with the outcome of our new trade protocol and our new model and believe it will serve us all well going forward. We are in the meantime going to be busy working on our new clearing endeavor and will keep all parties informed as we go. Being managed traders for so long we feel no one will be in a better position to do this properly than ourselves. In the meantime we are looking to keep a watchful eye on the markets. It has been a tough go the past few months but we never give up and never stop trying to improve and that is our commitment to our clients and ourselves.

As always we will do our best to communicate 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

July 2011 Month-End Trading Report

2011-08-04T15:48:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of August. We will shorten our updates down significantly on the monthly updates and get into more details on the quarterly updated.

The good news this month is that we were positive across the board. We didn’t shatter any records, and some were just barely positive, but given the overall state of the markets we are pleased! Navigating these waters lately is like doing so in a patched up leaky old inflatable boat. Most people around the world have watched this whole “debt train” cruising down the track toward a mutual guaranteed devastation now in both Europe and the USA. Most have been watching with a gloomy interest but also mixed with justifiable fear for the future.

During the past few weeks, markets have become increasingly anxious, in turn creating an environment of heightened price volatility and crazy whiplash movements. Right when all of this Euro Zone volatility looked to be settling a bit, US officials have been preparing for a possible dollar default, and the dollar is now near a record low. While the situation is likely more serious in Europe, the spot light has certainly been “shifted” to the USD at least temporarily. Unfortunately these two currencies are the base currencies for most of the pairs we trade. So again, we are proceeding carefully this month in the markets. More than anything we just really want some stability to return again to the FX Markets. While we do not necessarily think that the austerity measures and debt ceiling solutions are even solutions at all, they certainly will bring some stability back again to the markets. If an agreement is reached in USA, as expected, on the debt ceiling this could lead to a sigh of relief in the markets and for many FX traders as well as traders investors and speculators of all other global markets. This is certainly shaping up to be a summer to remember, and similar to that of the 2008 crisis and just as long and drawn out.

Our returns for the month of July are as follows…

SYSTEM	INOVA	OFM	Broker Average
SYSTEM	INOVA	OFM	Broker Average
Precision FX	0.45%	5.19%	2.82%
McLaren FX	2.68%	1.29%	1.99%
Vega FX	1.07%	51.13%	26.10%
July Average	1.40%	19.20%	10.30%

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

Trading on all systems was again a difficult task this month, but seemed to improved near the last few weeks. We ended up closing some of our systems down early, and will keep a close eye on things this month should we need to do the same. We have been working on a trade copier for quite some time, and have implemented it onto our Vega product for now. We feel that this will be the only system that may work for this, as it does not have any of the short term scalping or price action based systems on it which are very broker dependant. We are of course testing this on all systems though. This was responsible for much of the large discrepancies between Vega at both brokers this month. The copier was not configured correctly to read and place position sizes between brokers, hence magnifying both the gains and losses at OFM brokerage. This has since been rectified, and the discrepancies should be few. An updated profile has been written about Vega, and an updated profile is in the works for McLaren. The McLaren strategy has been (and is still being) “refined” a little more. A few pairs will be removed, and it is very close to finally becoming diversified by adding in a short and mid term strategy to its general long term counter-trend strategy. This should really smooth things out, and these updates will take effect this month.

INFORMATION AND NEW DEVELOPMENTS

In general we will spare many of the details and the in-depth market commentary we normally get into each month, and save them for the quarter end updates. Our commissions are now being reduced and standardized across all of our systems. For most systems its lower and some slightly higher now sitting at $11/RT across the board at both brokers effective immediately. We will always work on bringing these lower when we can. On the broker front, things are working smoothly, with the exception of our copier which is our issue not the brokers. Sparen has still not completed all retail exit accounts, and we will follow up with all Sparen account holders separately on this topic in the following day as we have some important information to share and discuss on this, so please hang tight on this topic. We know that it has taken an enormous amount of time on their end, and just want to ensure we are doing all we can to see that each client gets their exit funds back and accounts closed as quickly as possible.

SUMMARY

We are happy to once again report a positive and profitable update this month. In the meantime we are looking to keep an edge and navigate our way through this month’s shark infested and turbulent waters as best as we possibly can. It has been a tough go the past few months but we never give up and never stop trying to improve.

Warm Regards,

The CayoFlow Team

June 2011 Month-End Trading Report

2011-07-12T21:11:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of July. This past June was again mixed with some good and some bad, and also some important news. But before we get into any of that, we need to address the trades made on the Vega FX account during last two days at OFM brokerage for all those currently invested or those following and tracking our trading. Our clients will have witnessed a +100% return from Sunday night to Monday evening. While this was a pleasant surprise, please take note that the returns were not supposed to be that prominent. Those of you at Inovatrade did not realize this same return, but realized the 10% return in the same period, as should have been realized at OFM brokerage. We just finished our updated strategy on Vega FX last Friday, which is now completely “broker friendly”. This went into effect on Sunday night. Now, at the same time we also had our new custom trade copier completely finished for us last week as well. This discrepancy was the result of us incorrectly setting up the coefficient in the trade copier between brokers. Therefore OFM received 10x the position sizes as it should have on two very high profit trades. We noticed this right away from our text alerts, but also because our brokerage notified us as well. The trades went into positive territory quickly, and we managed the trades manually, moving our SLs to break even and letting the trades ride out. The result was a very hefty profit at OFM (100%) and a very good profit at Inovatrade (10%). Since then we have banked another 10% on top of this. But we revived many emails about this large gain at OFM, so decided to address you all here before you write into us about it. Rest assured, the copier coefficients have been setup properly now, and if this trade did go into negative due to our negligence we would have credited the account out of pocket. So OFM Vega clients have a nice little boost for the month, but please understand this is not something you will regularly see on the accounts going forward (100% in two days) as we do not want to run the system that aggressively. We have more details on the trade copier and Vega updates below.

The disappointing news for June was that it was our second negative average month in a row. This is a record for us where our diversification strategy resulted in a negative average month two months in a row back to back. This has been one of the toughest markets we have witnessed in a very long time, if not one of the toughest to date. McLaren gave back a large portion of its profits this year, and the other systems struggled to some degree to gain some ground. We had some issues with a few trades and our brokers, and also some plain 'ol bad luck, but in the end the numbers are all that matter. The top analysts in the USA have been hit the hardest, and the real smart ones sat out on the sidelines for the past two months. We have witnessed a complete deterioration of technical’s in the markets during the past 2 months, which is a first for us for this duration of time. Markets seem to be getting a little bit more back to normal now thankfully. But it is the summer months, and we still feel that there are a lot of tensions brewing up in the Euro zone and in the US, which we will address more 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. 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 June are as follows…

SYSTEM	INOVA	OFM	Broker Average
SYSTEM	INOVA	OFM	Broker Average
Precision FX	-2.35%	-5.65%	-4.00%
McLaren FX	-18.86%	-18.04%	-18.45%
Vega FX	-10.55%	-2.01%	-6.28%
June Average	-10.59%	-8.57%	-9.58%

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, even with its most recent upgrades had a tough month last month. We cannot be too hard on it, as it performed the way it should have. Much of the losses were due to the eurusd pair causing all kinds of problems for the system. We were fairly heavy on that one pair, and even though the entire system is diversified, it is important to be diversified between pairs and time frames too, not just strategies. Things are looking much better for it so far this month in terms of getting back on track, and we are looking forward to a more profitable second half to 2011 than the first half has been which has been an up and down story lately.

2. Chrome FX – CFX has been merged into the VFX program last month. It never fails that the old Chrome strategies were the most profitable this month. Hindsight is always 20/20 here, and this will be our last month posting about this system since it has now been merged into a final build of the Vega FX program.

3. Vega FX – VFX had a tough month in June for the same reasons as all the systems did. However, it is very important to note that the most powerful module of Vega FX has not been trading on the accounts for some time now. It was not permitted to run properly by both of our brokers, due to the technical nature in which it got into and out of trades. We have been working very hard on this since our broker asked us to turn off that component, and make it broker friendly. We have since completed this, and have a complete standardization on this between our brokers now. This is without a doubt our most exciting accomplishment this year. Rather than get into how we think this is going to be the greatest thing since sliced bread, we will let it prove itself over time. It has a very unique risk/reward and profitable ratio. This additional module has approximately 40% winners and 60% losers on average. But the winners are far larger than the losers. This equates to some incredible growth over time. This R:R is pretty much the polar opposite of our scalpers, which have very high win rates (high accuracy), small TPs, and large SLs. To put it mildly, we are going to be quite disappointed if we do not hit a double digit most months with this now. Rather than have this trade on eurusd only we cut down the risk and diversified it across more pairs including some jpy pairs. Vega investors - put your seat belts on!

4. McLaren FX – MFX our longer term swing system had its toughest month this year in June, again from the same reasons that were causing most people problems in the markets. Any type of pattern recognition, rule/math based trading, and technical analysis was virtually thrown out the window during the months of May and June. Yes there were brief periods where it was somewhat reliable, but overall it has been a mess. Fundamental analysts came out on top the last few months. McLaren which is one of our simplest and most old school long term strategies pretty much hit its threshold in losing trades this month. It trades on a much higher timeframe than our other systems, and was not able to gain any footing in the longer term pull backs in large trending movements that the markets usually exhibit. Things are also looking better for this system so far this month as well and potential changes are just around the corner with this one. We needed to focus most of our efforts on Vega until it was completed. McLaren is next in line.

INFORMATION AND NEW DEVELOPMENTS

1. Markets – In general the past two months have proven not only a deterioration of technicals, but also a worsening outlook for the global economy which is weighing heavily on risk assets. Both the US markets and the Euro zone are jittery after an extremely volatile end of QE2 in which both regions’ escalating debt crisis has been peaking and constantly at centre stage.

While the US debt crisis is in an entirely different league of its own altogether, the majority of the volatility last month came from Greece and the Euro zone in general. There have been some measures drawn up in June, but we do not see this as anywhere near the end to the volatility or a solution for Greece. Simply put, it's impossible to see how loans on top of more loans are going to create a long-term solution for Greece. Instead, the odds are rising quickly that Greece will need to do what Argentina did a decade ago – default on it’s debt. Right about now, there are many Greek citizens that would likely welcome that move, although the banks would not at all, which has been causing much of the market pressure.

The jury is still out on whether most of the mistrustful governments can agree on the fine print for a Greek debt reduction program that could help with economic recovery, or if doing so is just going to literally double costs to the tax payers there, and just prolong an inevitable default. All we know is that we hope it goes clearly one way or the other and doesn’t just keep meandering on like this for months and months on end, as it has been wreaking havoc on the forex markets. That being said we do believe that the worst of it is over in terms of volatility (knock on wood). As always we are paying extra attention to this, and it is probably the most notorious time that we have paid such close attention to market fundamentals as apposed to just the technicals.

2. Brokers – We don’t have much to report on the broker front besides the regular complaining we normally do about them in general, so we will spare you all from that for once. For the most part things have been working as they should with our brokers. It has just been the markets that have been uncooperative. We did notice some glitches at OFM this past month which were addressed and handled by OFM for the most part. Inovatrade has been working great, and their service has improved greatly with some re-organization taking place there over the past month.

On the Sparen retail exit front, obviously this has taken longer than they have anticipated. We spoke with the director Mark Rice last week about this, and he is anticipating having all of our clients completely wrapped up in approx 3 weeks from now. Again, they have always been slow, so this is not much of a shock to us, but we will be keeping tabs on the exit process to ensure it gets underway and that all of our clients are taken care of. Our MAMs are apparently the last on the list. Many of you have written us about being asked for additional KYC (know your client) disclosure information by their accounting/compliance team. If asked, please provide the necessary information when requested to help speed things along for everyone. Some of our clients who have been with us for over 3 years there did not even need a piece of ID at that time to open the accounts. They just had to give the ID number (this included us too). They have tightened compliance quite a bit and need information for every account holder on file before they can clear the accounts, so yes this is legit if requested and please provide the documentation asked of you.

3. Cayo Live Manual Trader – We had a live manual trader we were working closely with to bring to the table for those who preferred a fully discretionary trader over the auto systems. We admit for the first time in a long while (with the way the markets were behaving) we were seeing the positives of discretionary trading over systematic trading and considered offering his services to our clients as a place to diversify. However, this past month, he ended up breaking his own rules and lost 40% of our live test account. This was very shocking to see with 1 year + of a great track record averaging approx 8% per month. This was disappointing, but not surprising. Our experience working with manual traders has not been that positive. While there are many good ones out there, most are emotional (get tired, stressed, and worried), most break their own rules, and in general it’s very difficult to work with them on a long-term basis. We are sticking to what we do best, and really do believe our hard work is going to pay off, and the recent market conditions have been a bit of a blessing in disguise to motivate us to work around improving things.

4. Monthly to Quarterly Performance Fee Periods and Commission Reduction – While we had this quarterly plan pretty much nailed in stone, after much discussion with our programmers and developers over the past few weeks, they preferred to keep this on a monthly schedule, at least until the end of the year. They have been doing an immense amount of programming and testing and research and development especially during this past month and a half, and would prefer to keep some performance related cash flow flowing each month to help in offsetting some of these costs. As it stands now our performance fee high water marks are pretty much on a quarterly basis anyways, but we hope that that is set to change. We will move these updates and commentaries to a quarterly schedule (or keep them brief each month), but performance fees shall remain on a monthly schedule at least for the remainder of the year. We have some catching up to do with the high water marks so that will keep us busy and motivated in the short term. In terms of the transactional commissions, we have just signed our reduction change agreements with one brokerage last week, and will with the other this week. The first reduction right now will be $10 per million, and we have commitment for a further reduction over time as well.

SUMMARY AND GOALS

This has been an unprecedented occurrence for us, whereby our diversified strategy of multiple systems had a negative monthly average two months in a row. This has been a major blow for us. But in the same breath it is giving us a mega dose of motivation. One thing is for certain, and that is that no one works harder on improving their trading systems than we do! We may not hit home runs every month, but we are working our tails off to ensure we are improving on things where they are needed and to ensure we have some home runs ahead of us. This is our true passion and we have made some major major breakthroughs with the Vega system this past week after many many weeks of working on it and testing it, and we believe we have something very special and we are going to let it show itself off on its own with the numbers since nothing else really matters.

We are always working on tweaking and perfecting things as much as we can. We have an enormous amount of contacts, support, programmers, traders and partners all making up our team and we are truly blessed to have such a good group close to us. While these past two months have been quite frustrating for us, we understand the realities of this business (we can’t win ‘em all). But we accept it for what it is, and put our heads down and continue to keep on improving as best as we can so that we will be here for a long time and will continue to make our clients and partners and ourselves profits. 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 like we are seeing now. This will not be the last time that we will have to contend with periods of poor performance, but by keeping our risk in check our drawdowns will not be devastating and we will always be able to get back in positive action as we are seeing so far this month.

We are looking forward to heading into a profitable July. 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

May 2011 Month-End Trading Report

2011-06-11T09:50:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we enter into the month of June. Our apologies for the delayed update as we have been extremely busy with things and always aim to get our updates out by NFP each month. This report is mixed with some good, some bad, and some important news. The bad news first is that we had a negative overall average month in May. One of our poorest months to date and this was very frustrating for us. Even though one of our systems was positive, the other 3 were not in-turn bringing the monthly average into the negative. The good news is we are finally getting a reduction in our volume commission which we are gladly passing along to our clients. Many have written about this to us, and we are ready for implementation July 1. That with a shift to quarterly compounding cycles should all translate into more cash into our investor’s pockets. The important news is on some big changes to our systems this month (including a merger of two – Vega and Chrome. Chrome is now Vega – but with a few Chrome strategies in it). More details below. We have some huge updates to PFX as well. We have been doing a pile of research for the past 4 weeks, and we believe that there is a very significant fundamental “shift” taking place in the markets as a whole which we explain below and how we plan to contend with it which many of you may find interesting.

The markets in May were filled with terrible nervousness regarding the looming euro-zone debt crisis which was not soothed at all by a still unsettled draft plan "troika". For those not following this, there will be a vote that takes place at the end of June to see if various legislation passes, or if Greece will basically crash and burn. If Greece does not get the new austerity measures passed, Greece will default, and the financial and economic consequences of this are dire and will have an enormous effect across the world in the financial markets and banking system. So logically we are paying very close attention to this. Then (of course at the same time) we saw that the US governments credit status (debt) was both actually downgraded and threatened to be further downgraded by several rating agencies (Moody's Investors Service and Standard & Poor's Fitch Ratings) because of their own debt ceiling and probability of default – also having a large impact on market sentiment. What this boils down to is that tensions are very HIGH and things don’t look pretty on both sides of the pond right now. We usually do not get caught up in the fundamentals too much, but when it impacts the markets like this we do. We are keeping a close eye on the situation and the markets which are still quite volatile and should remain as such until the end of this month or beyond.

Our returns for the month of May are as follows…

SYSTEM	INOVA	OFM
SYSTEM	INOVA	OFM
Precision FX	-9.25%	-12.39%
Chrome FX	-6.80%	-9.77%
McLaren FX	-12.06%	-14.02%
Vega FX	4.40%	n/a
April Average	-5.93%	-12.06%

NOTE: The overall difference in performance this month between brokers was due to a slight increased risk measure on floating equity which in-turn magnified gains and losses. This has since been addressed, but is the reason why one broker had better returns than the other.

* Please keep in mind that we are now trading some of these 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 1^st 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 below and on the following page: http://cayoflow.com/performance.html for a further detailed breakdown.

MONTH	PRECISION	CHROME	MCLAREN	VEGA	AVERAGE
Dec-08	32.30%	72.32%			52.31%
Jan-09	18.70%	-4.19%			7.26%
Feb-09	27.50%	160.30%			93.90%
Mar-09	29.50%	21.79%			25.65%
Apr-09	-34.40%	61.33%			13.47%
May-09	53.30%	33.53%	9.43%		32.09%
Jun-09	23.60%	25.77%	30.46%		26.61%
Jul-09	10.10%	20.69%	28.02%		19.60%
Aug-09	26.92%	10.77%	26.94%		21.54%
Sep-09	-0.32%	5.44%	7.83%		4.32%
Oct-09	-4.26%	20.36%	11.94%		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	10.46%	-8.04%	0.20%	5.77%	2.10%
Jan-11	-3.16%	-3.89%	-0.17%	12.39%	1.29%
Feb-11	13.28%	8.79%	0.97%	-9.92%	3.28%
Mar-11	-4.95%	12.67%	10.05%	0.23%	4.50%
Apr-11	3.41%	-15.89%	13.39%	0.47%	0.34%
May-11	-9.25%	-6.80%	-12.06%	4.40%	-5.93%
TOTAL COMP'D RETURN:	1554.09%	3074.36%	841.57%	368.97%	3906.44%


MONTHLY AVERAGE:	11.06%	15.66%	9.93%	8.90%	14.32%

MONTH-END TRADING RECAP

1. Precision FX – PFX just as of June 3^rd and June 10^th has had two of its biggest overhauls and makeovers in the past two years. Most of this had to do with the scalping aspects of the system. For most of this year scalping has been getting tougher and tougher to do. We have finished weeks of analysis and testing and have made some very significant adjustments to the scalping components of PFX. Most of which we are very excited about. In general the Asian session (prime scalping session) has been a total mess as of lately. Aside from market sentiment, there are simply a whole lot more people coming in and doing what we have been doing successfully for the past 3 years. Our research tells us that there has been a huge influx in high frequency trading, and algo trading during these normally “quite times” when scalping conditions have primarily been great. Last year you could usually see hours of currency ranges in the Asian session with low volatility and very little trend formation. Lately we are lucky to see one hour in these time periods. While the increased high-frequency trading has done some good by amplifying liquidity and lowered spreads, it has also most certainly increased volatility as well.

We have implanted some new features in response to this. Namely being 1. Expanding trade hours - we are now trading outside our regular Asian window. Basically if conditions are good, we will scalp. If not, we will sit out, (no matter what session). We will not limit this to a particular time frame as much anymore (although the Asian session still overall is best). But if we find good opportunities outside of the Asian session, we will capitalize on them. 2. Increased SL and TP targets - we won’t get stopped out near as easy when sudden spikes quickly become worsened as automatic stop orders flood the market. We will of course have to contend with the occasional large looser (common to scalping), but they should be fewer and further between. Our profit targets are higher now as well. 3. Stricter trade entry requirements (filter and indicator based). This means our trade entries are a little different. We expect a little less trades, but the ones that do pass the test should have a higher rate of success. Given the overall state of the market we are still proceeding with relatively low risk, but we anticipating seeing a very big improvement on the overall success of PFX in the short term and after this Euro stuff and dollar stuff settle or come to some form of resolution this month, we will increase our risk slightly and systematically. We are always ensuring that this system continues to morph and adapt with the market.

2. Chrome FX – CFX struggled this month as well for the same reasons that PFX did. Much of the drawdown occurred around the scalping, and the scalping aspect of Chrome has even tighter stops than PFX and due to this last month we witnessed quite a few more SLs than normal. Chrome has been a tug-o-war for most of this year. It is diversified, and it has some really great and consistent strategies, but also some less great ones which often eat up most of the good strategies gains. We have decided to remove much of the “filler” in this system, and strip out only the best strategies, and move these over to Vega FX to further diversify it a little more. The Vega developers openly welcomed this. As of this update we are ditching the “Chrome” product, and merging it into the VegaFX program, with the best of the Chrome strategies mixed with the best of the Vega strategies. This is in effect as of June 10^th. For clients in Chrome, this is going to be seamless, and you will see the newer strategies take place asap. While this only gives us 3 systems now, we believe that this is enough for proper diversification and we hope to see 3 solid systems as apposed to a potential 4 mediocre ones.

3. Vega FX – VFX as indicated above has just had a Chrome sub-strategy added to it, to assist in its overall basket of diversified strategies. We had a very short term sub-strategy added during the middle of last month, but it required a different feed to work properly so it was ceased until the feed becomes available upon more testing (it was very successful when live). It’s now trading very well with its medium and longer-term strategies. It was our only positive system in May, and is off to a great start this month as well. We feel that this is going to be a very strong product with the additional sub-strategy from Chrome now, and has potential to be our top long-term performer. Vega is now officially trading at OFM brokerage now as well. We will have a complete write up this month for the system with all its details as we have are overdue and this has been requested by many of our perspective investors.

4. McLaren FX – MFX our longer term swing system had a really tough month this month as well, clearly verifying the randomness in the markets as it is highly non-correlated to our other systems. This system uses classical chart patterns for signal generation and risk control which were arbitrary this month due to much of the volatility experienced and a change in short term price behavior. This system trades many pairs, even the exotics and even finding good trades this month was a challenge when usually it can always find a pullback in the markets somewhere. This system has just come off a good run for a few months, and will get back into its course of profit after some of the volatility settles. In the meantime a very big update is in the works for this system as well, much along the lines of what happened to PFX - a complete overhaul, revision, and possible diversification are in store for this strategy, which we believe will bring many good things to it.

INFORMATION AND NEW DEVELOPMENTS

1. Markets (Very interesting information here – especially for traders) – While revising some of our strategies these past few weeks, we have been doing a lot of R&D on the forex markets as a whole, and speaking to some large players in the industry (i.e., hedge funds, prime brokers, liquidity providers and some interesting market research groups etc…) and have been finding a lot out about the overall market changes and dynamics. Most are all coming to the same conclusion that there has been a significant impact on price behavior in the short- and intermediate-term time frames in the forex markets. Things are changing rapidly, and may likely never revert back to the way they were in the past. We have been a living testament to this in the past. 3 years ago we could scalp the eurgbp and eurchf for 5-6 hours per day without a hitch – it was beautiful! Then last year we had to revise this strategy as this was no longer possible. We changed time frames, added more pairs, revised the full scalping parameters, and had another great run. Once again we are noticing its time for various changes and have just recently implemented some major changes which should bring us some good fortune. For how long we are not sure, but one thing is for certain and that is not only are the markets changing more drastically, but the changes are also more often. So this certainly won’t be our last revision of strategies.

Much of our research shows that these changes are due to two primary factors. The first being huge volatility from the post-financial crisis uncertainty, but also from the pre-financial crisis looming (euro and usd). Tensions are extremely high in North America and Europe especially as indicated above, but also Asia. Overall volatility is at elevated levels right now. The second being the massive influx of high frequency trading and algorithmic trading coming into the forex markets. Here are the facts: “High-frequency trading accounted for roughly 30% of all foreign-exchange flows, as of 2010, compared with 13% in 2004, according to Boston-based consulting firm Aite Group. (By contrast, 66% of global stocks trading are high frequency).” According to Aite Group, it will jump to 42% by the end of 2011 and to 60% in 2012 in the fx markets. “About 85% of the currency market’s growth in volume from 2007 to 2010 came from algorithmic and high frequency trading entering the market. According to a research paper on the topic, the massive influx of algorithmic trading has already caused a huge decline in the real power of technical analysis.

Some of the other side effects when these shifts in market sentiment occur are 1. An increase in the frequency of premature or false pattern breakouts. This is especially true on shorter time frames (much less reliable now than they were in the past). 2. It is almost a certainty that shorter-term patterns morph into a new slightly longer-term patterns which then morph again and again. Nearly each morph produces a losing trade if a position is held long enough. 3. Even in those cases when patterns work, the breakouts are much sloppier (usually require several attempts). 4. Intra-day noise has increased tremendously, more than ever before. 5. Nighttime price behavior is extremely unreliable.

We thought many of our readers may find this interesting as we sure do. While this may sound a little disheartening, keep in mind that with any change, come both challenge, but also opportunity. There is starting to be a large debate whether it will still even be possible for the average retail traders to turn a profit. We believe it will, but it will certainly get more challenging. Adaptability will be the name of the game more than ever. Those who embrace this in our opinion will go the distance. Those who do not will make some fast money then crash and burn in our view.

2. Brokers – Surprisingly we do not have much of a rant on brokers this month. Typically a large portion of our losses are due to brokers when we have a down month, but that wasn’t much of the case this month (there was a little, but most was regular justifiable trading losses which will always happen). Inovatrade should be getting new deposit banks for July which many will like. OFM was trading with a slightly higher risk profile this past month. This is due to the fact that our money management modules base trade sizes on floating equity. We were required to keep an “overflow deposit” at OFM but this actually shows up on our equity (not balance) which is where most of our trade sizes are calculated from (available free margin) so this caused a slightly increased risk profile last month hence exaggerating gains and losses compared to inovatrade but has been adjusted for recently. We would like to point out that while OFM is mainly for non-USA investors, we can work with select ECP clients (i.e., accredited/sophisticated investors) from the USA there. On the SparenFX front, many of you have received an email update this past week detailing the progress. Although we have been told that our MAMs have not yet been entered into the exit process yet, we have reports of a few clients having their exits completed. We are tracking separately each and every one of our clients to ensure that no one gets missed. We have all but two clients who have not submitted their exit forms yet, but thank you to everyone else who has submitted them in a timely fashion. We anticipate that by the next update this will be well underway or even finished. As we receive more information we will of course update our investors as it comes along. As of right now we have stopped trading all of our MAMs there until the exit transpires.

3. Monthly to Quarterly Performance Fee Periods – This will officially come into effect on July 1^st. 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. 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 and are happy to make the change.

4. Transaction Commission Reduction – We are reaching a volume threshold at both of our brokers where we will be entitled to a reduction in transactional fees. Unless things change this should go into effect on July 1^st as well. We are unsure the exact amount at this point, but we go to the negotiating table this month. We are doing quite a few things on the private side at both of our brokers so we will of course need to factor everything in, but we believe it will be a decent reduction. Both of these brokers are much more flexible and business savvy than Sparen was. This is good news as it should also translate into a little more dough into our investor’s pockets each month, and combined with quarterly compounding periods should have a decent impact on the bottom line in terms of net performance.

5. Cayo Live – May has been one of the very few months where we have consistently seen manual discretionary traders out-perform the automated systematic trading systems. This is not normally the case, but we do see the benefit in a completely managed manually traded account (no computer programs). Due to this we are toying with the idea of bringing a ”cayo live” trader to the table to manage an account for us and any clients who may be interested. We know and work closely with some very good traders, and it would be just a matter of us deciding on who would best fit in terms of trading style and possible partnerships. We will be exploring this option closely and it could be a new development of ours. While our whole roots stem from automated trading, we are always open to various different forms of diversification and this could be one to look for in the not so distant future.

SUMMARY AND GOALS

We know that as traders we cannot always blame the markets or high volume trading operations or algo trading or brokers or external factors etc... for any negative performance we may encounter. Rather, evolutionary changes in price behavior must eventually be addressed by corresponding modifications in a trading plan or system and development groups need to take full responsibility. Which is exactly what we are doing. As markets shift, so will we. We never like it when we have an average negative month like we did in May, but they surely will happen from time to time. We always stress to our clients that this is a long-term investment, but only for those firms and investors who are committed to performing long term (and thinking as such) and not chasing the holy grail. The short term investors or traders looking for the fast “in and out” approach to wealth will never really match up properly with the longer term approach group. More often than not the quick buck groups do not have a happy ending. Understanding this and more importantly having realistic expectations in terms of risk, drawdowns, long-term profit targets, fair trading conditions, and market adaptability are our primary focuses and goals at present. This will be our 3rd consecutive full year in a row of managing client funds in the fx marketplace (one of the longest we know of) and we want all of our investors to understand that we are here for the long haul. This has not been without its challenges. We are usually faced with one challenge after another to some degree. This year so far has been chalk full of challenges on the brokerage front, and a bit of a back and forth story in terms of performance. But when we hit difficult periods such as in May, we do everything we can to identify the underlying causes and make any required changes to get back on top again. 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 and consistent adaptability when warranted.

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

April 2011 Month-End Trading Report

2011-05-15T11:07:00.000-07:00

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.

Our returns for the month of April are as follows…

SYSTEM	INOVA	OFM
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

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.

Warm Regards,

The CayoFlow Team

March 2011 Month-End Trading Report

2011-04-07T17:32:00.000-07:00

Dear Investor,

We hope that this message finds you all well as we wrap up the first quarter in 2011. There is so much to report on this past month that we do not know how we will be able to make this update short, but we will try our best to. This is a very important update, in particular on the brokerage front which pertains to everyone so we encourage all existing and potential investors to read through this in its entirety.

March was one of the craziest months we have witnessed in a long time both in terms of volatility and unprecedented events. Without getting into too much technical detail right here, this past month we witnessed an Aussie/Kiwi 20 year high, Swiss SNB interventions, then to make matters worse there had been the massive earthquake followed by a tsunami in Japan. As we mentioned mid-month, our heart and deepest sympathy goes out to all the people, and many of our clients who are in Japan contending with this. On the trading front, the earthquake and its effects sent a huge ripple through the markets. Around mid-month, it had been confirmed that a "partial" nuclear meltdown was underway in Japan! This sent the markets into a tornado to merge with these other storms, all adding up to create the "perfect storm" this month. For the most part, we were not affected much by this, but our Chrome system at Sparen was affected in an odd way, which we have more details about below.

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 March at all of our brokers are as follows…

	Brokers
SYSTEM	INOVATRADE	SPAREN FX	OFM
SYSTEM	INOVATRADE	SPAREN FX	OFM
Precision FX	-4.95%	-6.11%	-
Chrome FX	12.67%	-18.10%	-
McLaren FX	10.12%	10.05%	-
Vega FX	0.23%	-	-
March Average	4.52%	-4.72%	-

* Please keep in mind that we are now trading some of our systems at multiple different brokers. 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 with the allocation software in our MAM/PAMM. Please take note that while our returns are calculated from 1^st of each calendar month to the last trading day of the month, at Inovatrade brokerage our commission 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 (now broken down by brokerages) on this following page: http://cayoflow.com/performance.html

MONTH-END TRADING RECAP

1. Precision FX – PFX, our “bread and butter” system had a losing month this month. We hate it when this happens to this system the most, but it is inevitable that it will encounter losses from time to time. This is the reality of the FX market. It is coming off a good 10 month stretch of continuous profits, so these down months are bound to strike from time to time. Overall we are satisfied with how it handled the losses, and managed the risk. The drawdown is nothing we cannot stomach for the gains this normally pumps out. We will spare our readers the drawn out details of what caused the draw downs this month as we updated our investors in this system directly as we encountered them last month. Historically speaking March and April have always been the toughest periods for PFX. We are unsure the exact reason why, and it has always been a bit of a mystery. We think it could be the transition from winter to summer, or the DST hour shift, as our scalping is very “time dependant”. But in the same breath, our system is very different now, and we did witness a perfect storm last month, and markets are very very different now than they were 1 year ago. So it is hard to predict when our down months will hit and when we will get into a nice long profitable run. One thing is for sure though, and that is that we will be trading this strategy for a long time. It will weather any storms it is faced with when it needs to, and will get into some nice winning stretches as well. It is very robust! The broker discrepancy on this system was not so drastic last month thankfully. It is off to a slow start this month in April, but we expect to see it gain some traction as we get into the month and we will strategically dial things up slowly since we are still on a somewhat low risk mode from last month.

2. Chrome FX – CFX had one of the craziest months in a long time at one of our brokerages (Sparen FX). We have a huge discrepancy between brokers here this month. We have a very nice profit at Inova, and a large drawdown at Sparen. This is very frustrating to see since it is the exact same system trading at both brokers. But we had a rare unprecedented event this month which caused the discrepancy (and unfortunately not much we can do about it), and this system really felt the nuclear melt down more than any during March.

This was a very unfortunate situation this month. Typically the scalping component of Chrome has stop losses no higher than 38 pips. It averages slightly when positions lose ground quickly, and the original stop losses are then dynamically adjusted. When Japan released news last month that they were experiencing a partial nuclear meltdown, the markets went berserk! This caused a panic and the markets moved super fast (too fast), and too much on virtually all pairs at once, and caused Sparen's platform to freeze momentarily, and in turn, some of our SLs were not honored. Their aggregator where they receive feeds from multiple liquidity providers at once was more or less "bottle necked" and the freeze occurred when we had open trades exposed. This was a first time that we have witnessed this.

Our full team (over 6 of us) receives a text message automatically whenever we get a platform error like this, but by the time we got to our server, the market had already moved over 200 pips past our SL (which should not have been over 38 pips) in less than just a few minutes. We went into damage control and managed the trades manually. This was very frustrating for us. We had argued with Sparen back and forth about a reimbursement for this, and normally they do without question when at fault, but they have been firm on this one, that it was out of their hands, and when things like that happen they are not accountable as it is a rare occurrence and was ultimately a result of their LPs and software limitations etc.. This could have been a good month at Sparen otherwise if it were not for this event. Luckily at Inovatrade we did not encounter this problem and all SLs were honored. Again, this is a very rare occurrence for something like this to happen. And we are reminded that our broker does not have to ever honor our SLs due to technical problems. We need to try our best to be prepared for such scenarios when market events like this occur and make sure we have back up plans in place and contingency plans for when technical problems do strike. While this loss was a hard pill to swallow when we had a nice double digit profit at our other broker, we realize that it could have been much worse if we did not have our back up alert system in place. Needless to say our high water marks are adjusted at Sparen for Chrome, and there will be some making up to be done there. Thankfully none of our other systems at Sparen were caught in this bottle neck.

3. McLaren FX – McLaren FX had a fantastic month with a nice late finish and continues to be a solid performer into April. The sleeping giant awakens! This system has banked nearly 20% in the past 2 weeks alone! Ironically this system seems to perform best when our scalpers are struggling, and makes for a very nice diversification split. Many clients mention to us how sometimes boring this strategy is when compared to our scalpers, but most investors understand that it’s the results that matter! Not the activity. This system seems to be in reverse correlation to our scalpers, and we can never stress enough that our clients should be diversified across all of our systems. In fact, we are going to explore the option to make one PAM with all of our systems trading it at once so the diversification is automatic. But until then it is up to each client to diversify their funds on their own across all of our systems. We have found historically that this system does better after the DST shift in time settings as well. McLaren is leading the pack as we enter into April, and we hope this trend will continue throughout the month. The best news however is that we have new and revised and optimized settings for this system just around the corner, as well as a new set of sub-strategies in the works! All of which look very promising at this point. We only see this strategy improving over time, and the lead developer behind this is truly on top of his game and both a professional trader and programmer in every aspect. We are proud to have this strategy as part of our portfolio of forex systems.

4. Vega FX – Vega FX had a rather monotonous month without any huge gains or losses. Since February was Vega’s first losing month in over 1 year, we wanted to play it safe moving into March until we saw that market conditions were improving for this particular strategy. So we did the responsible thing and kept risk quite low throughout the month. It ended the month in positive ground, just slightly over break even. Since then we have witnessed the strategy gain some ground back into its normal routine, and we will strategically increase risk when we feel it’s safe to and with mutual agreement from the developer. It has also been a good performer into the early days of April and we are looking forward to a good remainder of the month.

INFORMATION AND NEW DEVELOPMENTS

1. Broker Discrepancies and Other Broker Issues (VERY IMPORTANT) – Perhaps some of our biggest news this month is on the broker front.

Sparen FX: We have received word this past month that our oldest and longest running brokerage Sparen FX is going to be closing down their retail operations, and working solely with an institutional business model. This was a big decision on their part, and this is going to affect approximately 70-80% of our current clients trading at this brokerage. Existing retail accounts will eventually be closed down and refunded. As there is too much to get into during this update, we will address all current SparenFX account holders collectively later this week with regards to the processes and expectations during the closure. Sparen will also be addressing clients as well. We are working on structuring a very nice transition plan to transfer clients to our other existing and new brokerage firms and we will work with all clients individually to ensure there is a very smooth transition process in place. We will be trading as normally up until this transpires, and nothing will change until then. We will have a grace period to complete things so there is not a mad rush. Again we will address Sparen account holders later this week directly with further details as there will be some paper work eventually needed to be completed to get the process in order.

Inovatrade: Not much to report here. Things are working great as usual. Support continues to improve. Their platform is working flawlessly, and we have a very promising future with this broker. For clients wishing to top up their accounts, please take note that the banking information for them has recently changed. They are no longer using Suntrust bank as their deposit bank and have moved on to using various European banks for accepting deposits. Please inquire with them before sending funds in to ensure you have the latest wire instructions which include Commerzbank and UBS as options. This will be an option for Sparen account holders to eventually move to.

OneFinancialMarkets: After a very long testing period, we have finally decided on a new broker to begin our partnership with, and the firm that passed our test is One Financial Markets. They are a very large financial firm based out of the

. The brokerage firm offers “one stop shopping” and clients can trade FX, equities, commodities, CFDs and various other asset classes under one roof. We have a very unique arrangement in place with them, whereby we will be trading another broker’s liquidity, through OFM, and with OFM as the custodian of funds. This is a win win scenario for us, as we get to keep it out of the USA. Our testing shows this to be a fantastic option on our price feed, however only time will be the ultimate and only real true judge in how they fair out for us in the long-term. It is a major major task, and a very difficult one for us to choose a new brokerage. One that can meet all of our needs (which are quite stringent) and provide everything we are looking for, for both us and our clients. We have high expectations for this group, and this will also be another option for Sparen clients to eventually migrate their accounts to.

2. Possible Change to Performance Fee Periods - Some of our clients have written us previously suggesting a change in our performance fee periods from monthly to quarterly. As we mentioned in our last update we are always open to such suggestions from our investors and encourage this kind of feedback. We have looked at this very seriously and we may soon implement such an option for investors to switch this period to quarterly as apposed to monthly as early as the start Q3. This is not firm yet, but could be coming down the tube quite soon and we expect to have more details in place as we get further long with preparing for it.

3. Managed FX Longevity – Some of our clients have written into us this month about their experience with another managed FX firm who had a complete margin call of their accounts. Many who had in turn asked us if this was possible with us? While we would like to stand by the true time tested quote that “anything is possible”, we would feel safe to say that although anything is possible, something like this would be very very rare. Not only do we trade with hard stops, and inner fixed stops, but our strategies in general have safety features and good risk and money management built right into their core roots. Should worst case scenarios happen like what we have witnessed this month with Chrome at Sparen FX (a brokerage technical problem) we have safety check points in place to respond and send everything into damage control to minimize any wounds from worsening. As we know there are many moving parts in the FX business, from PAM accounts and MAM accounts to trade platforms and broker politics. Back up plans, safety nets, and adaptability are the only ways to survive over time. Without responsible trading, and our safety protocols in place we would have been margined a long time ago like many other firms we know have. Our key focus is on longevity above all else, and we truly want to be one of the very few FX firms with a long and extended history of managing 3^rd party funds. We (in Forex in particular) are very few and far between.

A colleague of ours sent us an interesting article this month on “the truth about hedge funds”. It was a very interesting read about how short lived many of them are. In fact it stated that more than 3000 hedge funds have opened and then closed shop in the past 5 years alone! We find this quite astonishing. And after reading the article, we found many similarities to the managed forex industry.

FX Managers also come and go. Like HFs, the managers often take big gambles. If it pays off, they make big money. If it flops, they close up shop and move on. “Heads they win, tails they flip again”. There is a lot of “churn” in the managed FX industry just like the hedge fund industry as depicted in the article. But this seems to be a very common story that we are unfortunately somewhat familiar with seeing ourselves in the past. One day a fund is taking big bets with borrowed money. The next a crisis strikes, markets go ballistic, accounts get margined, and the fund managers disappear. Of course for every few bad ones there are some good ones as well. The key to spotting them is to look for the ones who make it a priority to protect capital, and focus on long-term gain, instead of shooting the lights out each month.

We are doing everything in our power to ensure we are not, and will never be a “fly by night” firm, or a margin call firm. Clients who have been invested with us in the long term, and who follow our advice to diversify amongst all of our systems should do very well in the long term. Having realistic expectations (understanding that forex is NOT a get rich quick scheme – in fact it is the polar opposite), diversifying your assets, and understanding that we may need to weather a few storms in today’s crazy market environment is paramount to long term success, and the key to managed fx longevity in our collective opinion. We had many inquires about this this month so wanted to address it.

SUMMARY AND GOALS

Most of our biggest news this month was on the brokerage front. As you can see there are many changes taking place, some which will require further follow up with investors, and others which involve new relationships at new brokerages. We are constantly seeking out the best trade environment to provide us with the best technical conditions and the best custodianship for our clients. On the trading front, as some of our systems may from time to time go through periods/cycles where they struggle with market conditions, the diversified approach always 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. The majority of our clients are well diversified with us, but to those who are not we highly encourage this. As stated earlier, 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 in April. We will also be starting our Q1 quarterly audit process next week too. 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. We are always here for our clients.

Thank you to all our current investors for your trust once again in trading with us.

Warm Regards,

The CayoFlow Team