Definition of global macro

Global macro, a hedge fund strategy that aims to profit from large economic and political changes in various countries by specialising in bets on interest rates, sovereign bonds and currencies. [1]

Unexpected macro-economic news, central bank actions, trading activity, political risk and information asymmetry are but some of the ways in which securities can be temporarily driven above or below their long-term values and expectations. Global macro is an investment strategy which attempts to exploit these temporary deviations from such values and expectations.

It does so by taking long and short positions in global equity, bond, commodity and currency markets, both in the underlying cash as well as in the derivatives markets depending on whether a particular segment is undervalued or overvalued.

Investment managers, including hedge funds, who undertake global macro strategies, tend to use both quantitative analysis and qualitative evaluations to understand global relative price movements, liquidity, volatility, business cycles and other macro-economic conditions, so as to profit from them.

Also, there exists a band of global macro managers known as proprietary traders, who work in investment banks, albeit these are a dying breed in the US due to the “Volcker Rule”. This rule is part of the US financial reform law passed in 2010 to limit short-term, high risk and sometimes highly-leveraged trading activity conducted by banks.

Example

There are many global macro managers that exist in the financial world today. The more well-known ones are hedge funds, such as Moore Capital, Bridgewater Associates, Tudor Investment and Brevan Howard. They trade across geographies and asset classes, putting billions of their clients’ and their own money at risk in the pursuit of investment profit. [2]

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Global macro sees a mixed year

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