Global Macro Trading

Profiting in a New World Economy

Greg Gliner

• Publisher: Bloomberg Press
• Year: 2014
• Print ISBN: 9781118362426
• eBook ISBN: 9781118417140
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Brings global macro trading down to earth for individual and professional traders, investors and asset managers, as well being a useful reference handbook

Global Macro Trading is an indispensable guide for traders and investors who want to trade Global Macro – it provides Trading Strategies and overviews of the four asset classes in Global Macro which include equities, currencies, fixed income and commodities. Greg Gliner, who has worked for some of the largest global macro hedge funds, shares ways in which an array of global macro participants seek to capitalize on this strategy, while also serving as a useful reference tool. Whether you are a retail investor, manage your own portfolio, or a finance professional, this book equips you with the knowledge and skills you need to capitalize in global macro.

• Provides a comprehensive overview of global macro trading, which consists of portfolio construction, risk management, biases and essentials to query building
• Equips the reader with introductions and tools for each of the four asset classes; equities, currencies, fixed income and commodities
• Arms you with a range of powerful global-macro trading and investing strategies, that include introductions to discretionary and systematic macro
• Introduces the role of central banking, importance of global macroeconomic data releases and demographics, as they relate to global macro trading

Part One
An Overview of Global Macro

Chapter 1
Surveying the Global Macro Landscape

Global macro, short for global macroeconomics, is the strategy of using economic theory, educated guesses about the macroeconomic environment, and geopolitical events to make large-scale investments around the world. It’s one of the most important strategies for any global investor, no matter if they are retail or institutional, because global events have a substantial influence on the performance of any type of investment.

Global macro is often considered the most flexible and opportunistic hedge fund strategy, due to the scope of traded products and the number of markets it covers. Its aim is to preserve capital, using stringent risk management to limit drawdowns. Profits are made through trades in equities, currency, fixed income, and commodities. These trades can occur anywhere in the world, hence the term “global macro.”

This chapter introduces the basic types of global macro strategies, historical returns of the strategy, and the various reasons why institutions choose to allocate to global macro.

Types of Global Macro Strategies

Like any hedge fund strategy, global macro can be categorized into substrategies. The four basic approaches of global macro are discretionary, systematic, high frequency, and commodity trading advisors (CTAs).

Discretionary and systematic macro strategies both have the potential to be extremely profitable and are powerful methods of analyzing markets and determining investments. These are the two most often used global macro strategies but, because the four are often used together, it’s important to understand how all of them work.

Discretionary

Discretionary macro trading, as the name implies, relies on a trader’s experience, intelligence, and knowledge to take subjective and often risky bets on various global markets in order to capture alpha and the best possible risk-adjusted return. With knowledge gleaned from studying global data, releases, economic data, and central bank action, among countless other factors, an investor can frame a top-down approach. This allows for a unique analysis of the risks and opportunities offered by industries, sectors, countries, and the macroeconomic situation at large.

Discretionary strategy requires serious organization and processing skills, since it involves such a large amount of data. The ability to analyze data across many different markets aids the trader in assessing whether or not a particular market is fully incorporating all factors into global asset prices.

The discretionary macro strategy is nimble and can also produce alpha in significant risk off markets. One example of a trader using historical patterns to capture alpha this way is Paul Tudor Jones’s prediction of the Black Monday crash on October 19, 1987. Jones observed that the market behavior during that period could potentially experience a catastrophic crash. He expressed this view by going short and made an enormous return on Black Monday.

Global macro managers have the luxury of being able to trade a vast amount of markets and also to go against the trend, shorting the stock market while other hedge fund strategies and mutual funds remain long. Thus, discretionary traders have the potential to make a tremendous profit in a selloff, while equity managers tend to lose significant amounts of capital.

Discretionary macro traders may also determine trades based on direction and relative value. Directional trades are made in hopes of an asset moving in a particular direction. For example, if a manager is bullish he or she could go long copper and hope to capture returns on the move up.

Relative value trades aim to pair or group assets together to capture the relative value differential between those assets, and profit from a divergence or change in the price difference. Looking at the European crisis, if a discretionary macro trader believes that German yields will be less affected than Italian yields, the trader can short Italian five years and go long German Bobls. If matters worsen in Europe and Italy acquires more credit risk, it could see yields rise in relative terms.

Systematic

The second main type of global macro strategy is systematic macro. Systematic managers employ a top-down model that takes various economic indicators into account. By using large sets of quantitative data, systematic macro strategies seek to earn alpha by capturing these dislocations. Systematic macro funds typically employ many PhDs to “systemize” all these quantitative factors in order to produce a model of trading positions that removes the variable of human emotion. Systematic macro prides...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Preface
• Acknowledgments
• Part One: An Overview of Global Macro
• Part Two: Global Macro Trading Foundation
• References
• About the Author
• Index
• End User License Agreement