A global macro strategy is an Investing and Trading Strategy that based its holdings (Stocks, equities, futures markets, currency) largely on other nations' broad economic and political perspectives or macroeconomic principles.
Fund managers evaluate a variety of macroeconomic and geopolitical aspects like interest rates, currency exchange rates, international commerce levels, political events, and international relations in order to implement a global macro strategy successfully. hedge fund and Mutual Funds frequently use global macro strategies.
Global macro strategies are categorised according to the macroeconomic element they rely on the most. There are three main kinds:
In currency strategies, funds often look for opportunities based on the relative strength of one currency vs another. It pays close attention to various countries' monetary policies and short-term interest rates. Currency and currency derivatives are the most common instruments employed in such a strategy. Because currency techniques may be traded with leverage, they may yield attractive profits. The high leverage, on the other hand, makes the deals exceedingly risky.
This sort of global macro strategy focuses on sovereign debt interest rates, making both directional and relative value trades. A country's monetary policy, as well as its economic and political status, are all heavily emphasised in such a plan. Government debts and derivatives based on such securities are the most popular financial instruments used in the approach. They may also invest in debt issued by other developed and developing countries.
These strategies use futures, options, and Exchange-Traded Funds (ETFs) to analyse a country's equity or commodities index. During periods of low-interest rates, fund managers aim to build portfolios that beat the index. They mostly concentrate on liquid assets that can be exchanged quickly in times of uncertainty.
Market risks are the only drawbacks to these investments, which are to be expected. This means there are no additional concerns such as liquidity or credit. Various derivatives on equity indexes are routinely used to implement stock index strategies.
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Global macro funds are classified by the execution manner of the strategies, in addition to the distinctions in strategies. It can be divided into three categories:
Global macro funds employ a variety of investment products, but instead of building portfolios based on top-level views, these funds use price-based and trend-following algorithms to assist in building portfolios and executing trades.
The fund manager's fundamental analysis is used to build the Portfolio. It is the most adaptable form of global macro fund, allowing fund managers to invest in a wide Range of assets. This sort of global macro fund is the most adaptable since managers can go long or short on any asset from anywhere.
Fundamental analysis is used to design portfolios, and algorithms are used to execute trades. A mix of discretionary global macro and CTA funds, this style of investment combines the best of both worlds.
Suppose Mr X has a holding of stocks and future options in Indian indexes or the rupees. After covid-19, he feels that India is about to enter a Recession phase. In this scenario, he’ll sell stock and future options to safeguard himself from future losses. He could also perceive a huge possibility for growth in some other country, say the U.S, so his next move will be to take long holdings in its assets.