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.
