Over the last thirty years global macro investors have been some of the most consistent and successful investors in the world. I fact as a group they have the highest Sharpe ratio of any trading style in most hedge fund databases. In this article we will go over a few of the different reasons why this is.
Since global macro trader trade anywhere they can take advantage of any opportunity. In fact that is a good way to describe global macro they are opportunistic and truly capitalistic. Many traders focus on one segment of the financial markets, but global macro focuses on the markets.
Another factor that separates the global macro investor from many of his trading brethren is that he or she uses very strict risk management rules. The idea for this likely came as more traders left the pits and were sick of seeing people blow their accounts up due to leverage. If you trade levered up and do not cut your losses quickly then you will eventually go the way of the dinosaur and disappear with no money. So risk management is very key to the global macro investor's success.
Now that we have discussed the opportunistic behavior and the risk management aspect of global macro trading we will talk about another major benefit of global macro trading. The next best thing about global macro is that you can trade an entire investment theme. From start to finish you can trade the appropriate instrument, or instruments to best capitalize on the theme.
So if bonds are supposed to do well in part of the cycle you will trade bonds. Once stocks look better you move over to stocks, and then when commodities are heating up you move over to them. Essentially you are riding your entire trading theme. Where a regular stock trading strategy only looks at part of the theme, the global macro trader uses the entire thing.
If you are a global macro investor you take advantage of all your research and trade the entire theme from start to finish. You go from one security to the next all the while making use of the same piece of research. By looking across assert classes you can also pick the most effective instrument for different scenarios.
The path makes sense and yet we see trader after trader just stick to one asset class and not take advantage of all the opportunities out there. If you are successful at trading and therefore have a solid respect for risk, you can become a good global macro trader.
Obviously the benefits to a global macro investment approach are simple to understand. If your goal is to make money, and not just trade stocks then you will want to take a serious look at trading the global macro trading way.
Since global macro trader trade anywhere they can take advantage of any opportunity. In fact that is a good way to describe global macro they are opportunistic and truly capitalistic. Many traders focus on one segment of the financial markets, but global macro focuses on the markets.
Another factor that separates the global macro investor from many of his trading brethren is that he or she uses very strict risk management rules. The idea for this likely came as more traders left the pits and were sick of seeing people blow their accounts up due to leverage. If you trade levered up and do not cut your losses quickly then you will eventually go the way of the dinosaur and disappear with no money. So risk management is very key to the global macro investor's success.
Now that we have discussed the opportunistic behavior and the risk management aspect of global macro trading we will talk about another major benefit of global macro trading. The next best thing about global macro is that you can trade an entire investment theme. From start to finish you can trade the appropriate instrument, or instruments to best capitalize on the theme.
So if bonds are supposed to do well in part of the cycle you will trade bonds. Once stocks look better you move over to stocks, and then when commodities are heating up you move over to them. Essentially you are riding your entire trading theme. Where a regular stock trading strategy only looks at part of the theme, the global macro trader uses the entire thing.
If you are a global macro investor you take advantage of all your research and trade the entire theme from start to finish. You go from one security to the next all the while making use of the same piece of research. By looking across assert classes you can also pick the most effective instrument for different scenarios.
The path makes sense and yet we see trader after trader just stick to one asset class and not take advantage of all the opportunities out there. If you are successful at trading and therefore have a solid respect for risk, you can become a good global macro trader.
Obviously the benefits to a global macro investment approach are simple to understand. If your goal is to make money, and not just trade stocks then you will want to take a serious look at trading the global macro trading way.
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