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Definition: Global Macro Strategy
Global macro strategy is a funding strategy in which the investors invests in large scale in order to profit from large scale macro level factors such as economic and political changes in various countries by specialising in investing in interest rates, currencies and sovereign bonds. There are various hedge fund strategies that are used by the investors in order to get higher returns and global macro strategy is one of them.
• This kind of investing styles is based on forecasting and analysis skill of the investor. The forecast is made by analysing various factors like interest rate trends, treaties and agreements between countries, inter and intra government relations and other macro factors
• For forecasting purpose, they use both quantitative as well as qualitative analysis to understand various macro level changes
• Global macro trader’s focus on risk as the decision involves large amount of funds as well as analysis and forecast of major macro level factors. Their decision making depends on the risk and speculation. They mainly depend on risk management and try to maintain liquidity to avoid liquidity crisis (2008 crisis is one of the example which was characterised by long term low liquidity)
• Global macro traders tend to take advantage of unexpected macro news like actions taken by central bank policy and use this asymmetric information for their gain. They try to exploit this temporary change in factors for their profit motives.
Working of global macro strategy
The investor after studying the market macro level factors may undertake short term or long term position both in cash as well as derivatives depending on whether a particular segment is over or undervalued.
In a short position the investor sell the securities with the expectation in fall in prices where as in long position the investors expect the prices to rise and hence buys securities and hold on to them in order to make profits.
In case a manger after looking at the macro environment feels that the Japanese economy is going in a boom stage, in order to benefit from the same he would start investing in Japan.