What is a Global Macro Strategy?
Global macro is defined as a hedge fund strategy in which the fund invests and takes long and short positions in different types of assets based on the macroeconomic principles of different countries. The global macro hedge fund strrategy is known to have the most flexible approach as compared to the other types of hedge fund strategies as it can smoothly drift through the various economical conditions.
The markets that are invested in include equity, fixed income, currency and futures markets. The investments are done on the basis of macroeconomic theories about the condition of the countries. The macroeconomic indicators are a key for allowing the investors to make the right decision of investment. Predictions and analysis are done regarding the interest rates, flow of investment, political environment, inflation, government policies, foreign relations, GDP, balance of payments and the monetary and fiscal policy.
In a global macro strategy, the investor will examine and predict the state of the economy and will then take a position. For instance if an investor forecasts the US economy to go into a recession he/she will take a short position on US indexes or dollars. If on the other hand he/she believes the Indian economy will boom then he/she can take a long position in their assets. In this way, the risk of investment is spread over a number of countries and the fund might not be multinational in nature but it uses the theoretical indicators in order to justify the position it takes on different assets of different countries.
How to Acess Global Condition?
The economic condition of different countries is assessed by using knowledge and tools that help investors predict the direction of change in stock prices. Global news, current affairs, political situations, atmospheres of the trading blocs, value of different currencies and new technological developments are all sagaciously observed and analyzed in order to provide the hedge fund with the signal for taking a long or short position. In addition, the business cycle, state of developing economies, position of the Euro, and other factors are monitored in order to provide an insight into the way the economy will change.
The macro traders in particular make decisions from a risk avoidance perspective and they intend to stay as liquid as possible in order to avoid any problems. If their position is not liquid, the global macro traders find themselves facing financial problems. This was the case in 2007 and 2008 when the credit crisis led to a lack of liquidity for investors and the global macro traders faced multiple problems.
Understanding the Global Macro Strategy
In a global macro strategy, the focus is placed on investing in instruments that experience price changes due to the change in macroeconomic factors. This includes delving in markets such as currency, interest rate trading, and stock index trading.
The currency strategies basically revolve around currency pairs which are sensitive to changes in interest rates. Currency traders can enjoy greater leverage in this market, which is both beneficial and risky in terms of financial gains and losses.