Global Macro Trading

Global macro traders are a very diverse group of investors who have several different methods in which they go about selecting trades.  Some specialize in one type of trade while others are generalists and look at several different criteria.  Because of this there are a gazillion different tools that macro traders use.

One of the first tools or indicators is that of interest rates.  No investor should be doing anything without tracking interest rates.  Which interest rates need to be tracked?   Well you should probably track everything but at the bare minumum you should be tracking short and long term rates for the G-10 nations.  In addition it is worth reading the central banks meeting notes from all of these as well.  The price of money is invaluable and knowing where things are headed can really help you pinpoint where we are in the business cycle and what the world thinks is going to be happening in the economy.

Another really basic and yet invaluable tool is that of interest rates.  A moving average helps to smooth out data and in some data and price series can give you a clearer view of the prevailing trend.  In fact some of the larger CTA’s are rumored to be using some very simple moving average crossover systems in order to be on the right side of the trend more often than not.  Regardless of your view of technical analysis moving averages are an invaluable tool.

The Economist is the next tool.  If you are along time trader you likely already read the economist religiously but if you are new you may think that it is just another news service.  Yes, they provide news but as opposed to most other services The Economist does a great job at covering virtually every country on the planet.  By reading this each week you will be expanding your horizons in a global sense and it will help your anaysis.

This is but a small sampling of veryuseful tools that everyone should be using to find global imbalances and other situations that usually give us some extraordinary risk to reward trading opportunities.  There are countless other tools like a Bloomberg Terminal, different economic and trading models, as well as a host of other indicators and things to look at but this is a good start and will help the macro trader find several different trading opportunities that would have otherwise gone unnoticed.  By expanding your toolbox you are expanding your opportunity set.  Your opportunity set is of course where all your profits come from.

Global macro trading is commonly referred to as macro trading, global macro, big picture trading, global investing, pure speculation, etc.  There are a gazilliong different names but the underlying themes remains the same.  The global macro trader is focused on the best risk to reward opportutnities on the globe.  If stocks are good in India he might be there.  If bonds are looking great in South Africa she might be active there.  And if crude oil is looking good for the world in general he might be long the black gold.

Hopefully this paints the picture that the macro trader makes money by following every asset class in every country that is tradeable.  If you don’t then you are regularly leaving money on the table and in the same stroke are taking undue risk.

So how does a macro trader track all of this?  In the old days it was quite hard and most traders only traded the major markets of the world.  With the internet and technology we are able to track just about anything anywhere.  Using anything from an Excel spreadsheet to a Bloomberg terminal you can check quotes, get fundamental data, and even track sentiment on so many securities and markets that you have no excuse not to be doing it.

The majority of successful global macro traders use different timing models to cue them in on when a market is favorable or unfavorable and then they will go and dig deeper to make sure that it is a valid opportunity and that it has the proper risk to reward characteristics.  By using technology and different data series we are able to more efficiently find great trades across the globe.

For the retail trader that is interested in getting into global macro trading there are some wonderful and relatively new securities in the market today that enable you to trade in many markets that would otherwise be hard to get into to.  ETF’s or exchange traded funds are securities that trade like stocks but represent anything from the SP500, to platinum, to Malaysian equities, to the South African Rand.  Using these easily accessible instruments you can easily and at a low cost access the global markets.  Now you really don’t have an excuse to not look into global macro trading.

Become a Macro Trader

As the first post to this site we thought it would be helpful if we described what global macro trading is.

Historically global macro trading has been one of the most popular hedge fund styles as it has virtually unlimited capacity.  Funds such as George Soros Quantum Fund and Julian Robertsons Tiger Funds gravitated towards macro trading as their assets under management grew larger and larger.  If you are managing $20 Billion it is a lot harder to invest in great small and mid cap stocks as you end up being the majority of the trading volume.  On the other hand when you trade currencies or Treasury bonds the daily trading volumes and dollar volumes are so high that you could have a multi billion dollar position and unwind it in only a few minutes.

The other reason and in fact the primary reason that many successful traders have gravitated towards global macro trading is that it presents far more opportunities then any one market can do.  This is because the true global macro trader goes wherever they can find the best risk to reward scenarios.  Due to the wide variety of securities traded the macro trader is able to structure virtually any scenario imaginable.

That brings us to the next and best part of the macro trader and his arsenal.  Macro traders trade domestic stocks, foreign stocks, bonds of all types (Treasuries, Investment Grade Corporates, Junk Bonds, Municipal Bonds, even hard money loans), commodities, currencies, real estate, and if they are large enough they even invest in venture capital and private equity.  On top of all these asset classes the macro trader also trades any derivative related to these assets in order to trade within their risk parameters.

A very simple example of this would be in the options market.  If the macro trader wants to go long BHI-Baker Hughes because they think that the oil industry is going up they can either buy the stock or buy the options.  Depending upon the timeframe of the trade and the price of the options the trader will be able to take far less risk while being able to achieve the same or even greater gains.

While many strategies lock you into one market, macro trading allows you to go where the money is.  What is better to call every 10% move in the SP500 each year or to be in the best performing industry group each year?  As cool as calling every 10% move sounds you will make far more by being in the best place instead.

In case you haven’t picked up on it, the macro trader is able to trade wherever he or she sees opportunity and avoid the dead areas of the market.  Along the same lines the macro trader is also focused on absolute and not relative returns.  This is because relative returns can still be negative while absolute returns focus on positive results.  We don’t want to be the best looking pig, but instead want to be the markets equivalent of Kate Backinsale.

Judging by tthe long term performance of global macro trading as an asset class it is also apparent that we have some of the best risk adjusted and steady returns of any strategy out there.  While Soros has managed to do 30% returns since the late 1960’s there have also been several operators that have returned 15% and higher returns over long periods of time.

If you would like to learn more about global macro trading as well as recieve guidance regarding several different asset classes then try out The Macro Trader, a research and trading firm dedicated to global macro trading.  They aren’t a simple trend following CTA system masquerading as a macro trader, but instead are legit and not full of hype.

Good Luck,

Global Macro Trader