What is global macro trading?
Global macro trading looks at major trends occurring on a country or global level. If this outlook is favourable, investors may buy assets that appreciate in such conditions. If the outlook is flat, they might choose to stay invested in cash or low-risk interest bearing instruments. If the outlook is weak, they may short assets that could decline. They may get this information from analysing economic indicators.
Macro investors may buy or short stocks, bonds, currencies, commodities, and exchange-traded funds (ETFs). For example, if a macro investor believes that the US economy is heading towards a recession and predicts that stocks may decline, they may start shorting a wide array of stocks or stock index ETFs.
While some macro traders may only look at the macroeconomic conditions of the country that they’re based in, some around the world take a global approach and may invest in, or short, the different assets in different countries. For example, if the outlook for India is strong, a global macro investor based in the UK may buy Indian stocks, and at the same time, may short stocks in Russia and sell the country’s currency if its outlook is weak, for example.
Macro vs micro: what’s the difference?
Macro investing is not concerned with the profit levels of an individual company. Rather, the macro investor looks at whether profits are rising, on average, within a country for most companies. They look at whether the economy in that country is doing well or poorly, and what the political situation is like or may become, in order to find potential trading opportunities.
The investor considers whether commodities are rising or falling and the direction of interest rates. They may use fundamental analysis of economies and countries to assess where the economy is likely headed, and then make investments based on those assumptions.
On the other hand, micro investing is analysing individual assets to determine where that asset’s price may go. Buying an individual stock based on its technical analysis outlook or earnings per share is an example of micro investing. Value investing and growth investing strategies are also micro trading strategies because they focus on individual assets as opposed to broad-based trends.
Approaches to macro trading
According to the Corporate Finance Institute, macro trading falls into three categories:
Discretionary Macro: This approach allows flexibility and discretion. The macro trader does their analysis, whether fundamental or technical, and then deploys capital as they see fit. They are not limited to going only long or only short, or only trading certain assets or in certain countries. Essentially, based on their analysis, they can trade how they want with this information.
Systematic Macro: This approach is more rigid and rule based. Systemic strategies are often programable, meaning the rules are precise enough to be fed into a computer and have it decide what to buy and sell. There is no discretion here. The strategy defines exactly what to do based on the data points provided. Such strategies are typically based on historical backtesting or hypothetical models/predictions.
Commodity Trading Advisor (CTA)/Managed Futures: Managed futures or CTAs trade futures contracts on behalf of their clients. The manager may take a discretionary or systematic approach, but they only trade in futures contracts. Futures contracts can be traded on stock indices, commodities, volatility (such as the VIX index), currencies and interest rates.
What are some global macro trading strategies?
Global macro trading strategies use different inputs to assess whether a country’s economy is likely to perform better or worse in the future. Below are examples of the type of strategies macro traders may look at:
Trading on fundamental analysis
Macro traders look at economic data on a macro or country level. Important data points include GDP, price indices (inflation), employment rates, home sales and builds, interest rate announcements and expectations, manufacturing, and shipping numbers.
No single data point is important on its own. Rather, macro traders look for trends and extremes in the data relative to historic levels.
Monetary and fiscal policy
Monetary and fiscal policy are tools central banks and governments use to help control the economy.
Monetary policy controls the supply of money in the economy, primarily using interest rates. Lower interest rates and increasing money supply generally mean higher asset prices. Higher interest rates and decreasing money supply mean less buying and lower asset prices, generally.
Fiscal policy is how governments spend and tax. Higher spending and lower taxes tend to stimulate the economy. Lower government spending and higher taxes on businesses and individuals tend to result in slower economic growth.
Macro traders may look at these trends to assess whether it is a good time to buy or short the various asset classes.
Geopolitics
Macro traders look at how stable countries are and consider how that may change in the future. Stability allows for growth, while instability could create fear and push asset prices lower. In the Asia-Pacific region, macro traders often monitor Australia’s economic exposure to China, which is a key export partner. Trade tensions, shifts in Chinese demand, or changes in commodity flows can significantly impact the Australian dollar, equities, and mining stocks. Regional issues such as geopolitical instability in the Indo-Pacific or China’s domestic economic slowdown can also influence macro-based trading strategies.
The Middle East is another region closely watched by macro traders due to its outsised influence on global oil supply and energy markets. Conflicts, production decisions by OPEC members, or disruptions to shipping routes can all lead to significant ripple effects across oil prices, inflation expectations, and broader risk sentiment. These dynamics often affect not only energy-related assets but also currencies, equities, and inflation-sensitive sectors globally.
