What is Global Macro Trading? Definition & Strategies

There are multiple ways and strategies to trade the market. One of the most popular ones is global macro trading, a strategy that involves a deep knowledge of macroeconomic trends and the ability to interpret and respond to them.  

In this ‘Global Macro Trading Guide’ we cover the meaning, how to do it and how to get started. 

What is Global Macro Trading? 

Let’s start with the definition of global macro trading: “Global macro trading is an investment strategy which is based on the science or art of trying to predict large-scale events related to national economies, history, international relations and global themes.” 

Global macro traders typically analyse a wide range of economic and financial data to identify trends and market opportunities. Useful data that can be used are interest rates, inflation, exchange rates, government policies / political changes and global events. Those global events include elections, natural disasters and geopolitical tenses between countries.  

Depending on the results of their analysis, global macro traders make market decisions speculating on the direction financial instruments might go. This includes instruments such as bonds, stocks, currencies, commodities, derivatives and crypto.  

Global macro trading is used mainly by large funds and institutional investors, as it requires a high degree of knowledge and resources to collect and interpret the data. However, it is also possible for individuals to use this method to try and improve their decision making.

Why Use Global Macro Trading? 

Global macro traders aim to try and profit from both up and downturns in the market that are based on the biggest themes developing in the world. This could include the outcome of an election such as the Brexit vote in 2016, or the crash in oil prices just before the pandemic.  

Keep in mind that overall market sentiment can change suddenly due to unforeseen circumstances. Global macro trading, therefore, carries significant risks, especially if you don’t practice risk management and are unable to respond to rapid shifts in the market.  

In the next section, we discuss the different types of global macro trading. 

The Different Types of Macros Trading Systems  

There are two different types of global macro trading systems: discretionary and systematic. These are the main types of approaches used by most macro traders. Let’s dive in.  

Discretionary

This is the more flexible and adjustable type of global macro trading, with discretionary traders relying on their own judgement and experience rather than pre-defined rules and parameters. 

The analysis can be both technical or based on fundamentals, but the trader uses his or her own interpretation and intuition to come to conclusions and deploy capital as deemed wise.

One of the key points of discretionary macro trading is that there are no limits. A discretionary trader is not limited to long or short-term investing, one type of asset or assets from certain countries or stock exchanges, but whatever they want - in line with the correct information.  

Systematic

Systematic macro trading can sometimes feel like the total opposite of discretionary trading. This strategy is mostly used by large institutional investors and fund managers. Systematic traders base their trading on computer algorithms and programmable models.  

Systematic trading uses numerous data points to identify potential trades. It then executes those trades by itself, without human intervention. The decision to buy or sell is made by a computer, which uses the rules defined by advanced systematic trading models. 

Usually, these models take into account a wide range of data points to identify potential trades, including historical market trends, economic indicators, and news events. 

Discretionary vs Systematic Macro Trading 

What is the best macro trading system? Both approaches have their advantages and disadvantages.  Let’s compare the discretionary and systematic macro trading systems with each other.  

In short, discretionary trading allows traders to be more flexible and trusting of their gut feeling. It combines technical analysis and fundamental analysis with their own interpretation of macroeconomic events and allows for more intuition-based decision-making.  

This makes it more vulnerable to human error due to emotions and biases getting involved.  

Systematic trading follows a previously established system and set of rules and executes trades based on a wide range of data points. This makes it quick and efficient and leaves out the human factor. Hence, why systematic trading is less prone to emotional biases.  

The downside of systematic trading is the (in)ability to react to unexpected changes in the market.  

Ultimately, the choice between discretionary and systematic trading comes down to the personal preferences and expertise of the trader or investor. Where one might prefer the flexibility and intuition-based decisions made possible by discretionary trading, others might prefer the more objective systematic approach. 
 
See beneath for a short overview of the key advantages and disadvantages of each trading system: 

Discretionary Macro Trading Systems - Pros and Cons

Systematic Macro Trading Systems - Pros and Cons

How to Develop your own Global Macro Trading Strategy? 

Here are the steps that will help you to get started: 

1. Pick Strategies that Interest You and Have Access to Data

It’s important to choose a macro strategy that you find interesting, and where you can find data on. The strategy will be the foundation of the trading plan, and crucial for its future success. Some well-known trading strategies include trend-following, carry trading and hedging. 

2. Define the Assets You Will Trade

Once you picked your strategy, it’s time to define what assets you’re going to trade. Possible assets include stocks, ETF’s (exchange-traded funds), bonds, currency pairs and commodities. Compare the different assets and how they would fit your strategy in multiple macroeconomic scenarios.  

3. Choose Which Countries to Trade

The macroeconomic circumstances differ from country to country, and so does the performance of assets. Consider the strength of the economy of a country, but also the political stability and other macroeconomic factors.  

4. Use Historical Data to Establish Benchmarks

Historical data is key in determining benchmarks. After setting benchmarks, you can start noting how the values for data move and correlate to each other.

5. Buy and Sell Rules

Determine the data points that will trigger a buy or sell order for your asset. Next to picking data points, also choose a level for them and combine them with more technical data based on price charts. 

6. Practice Risk Management  

Risk management is essential in becoming a successful trader or investor. It helps to minimize losses and secure profits. Start with setting stop-loss levels for when a trade is wrong or doesn’t turn out the way you imagined. Setting rules for the amount of capital that is allocated for each trade is also important.  

Learning Lessons from Famous Global Macro Hedge Funds and Traders 

The impact of global macro hedge funds and traders are not something we can deny. Over the years, they made some of the most remarkable trades. By studying their strategies, we can gather valuable insights into how to execute a macro trading strategy. Let’s see some of the key outcomes over the years:  

1. Always be Informed

The best macro funds and traders are always up-to-date with the latest economic data and news around the world. This is essential for the interpretation of these events on a larger scale, and for making informed decisions. Staying informed gives you the biggest edge over competitors and makes it possible to outperform them. 

2. Don’t be Afraid to go Against the Herd

Part of trading is taking risks. Many of the most famous macro hedge funds and traders are not afraid to take a controversial stance and take positions that differ from the general consensus. But, this is far easier said than done, as hedge fund managers have also lost fortunes and client capital.  

3. A Strategy isn’t Complete without Risk Management

All global macro traders understand how important managing risk is for long term success. Make sure to manage your portfolio accordingly and set stop-losses and take profits that help to minimize risk and protect against unexpected market volatility. 

4. Focus on the Bigger Picture

Interpreting and understanding trends is a big part of global macro trading. The best funds and traders don’t only react to current events but plan now to optimize their profits when market conditions change in the future.  

5. Adaptability is Key

To be a successful macro trader, you have to be adaptable. As market conditions are never 100% predictable and can change in the blink of an eye, being able to quickly modify a trading strategy allows you to take advantage of opportunities.  

Global Macro Trading Summary

Global macro trading is an exciting and dynamic investment strategy that is built upon the interpretation of a wide array of macroeconomic trends and events, combined with further technological analyses and the analysis of financial and economic data. 

Examples of events that can indicate market opportunities for macro traders are interest rates, inflation, currency exchange rates and political changes. As mentioned, geopolitical tensions between countries and sudden natural disasters are also major indicators for macro traders that market sentiment is going to change. 

Successful macro trading is not just for institutional investors or large funds but can also be done by individual traders or investors.  

One of the best ways to test your skills and ideas is through using a demo trading account. This type of account will allow you to take positions in a virtual environment and practice your skills until you are ready to go live. 

FAQs on Global Macro Trading

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