![]() While a macro strategy can also trade stocks or bonds, remember that it likely has a much broader group of asset classes to choose from and the ability to go short as well as long. ![]() A macro strategy can trade currency, foreign exchange, or commodities. However, “Macro” is thrown about without great specificity, and it’s only fair for me to tell you how I understand macro trading.įor the average investor, the promise of macro investing is simple: by investing in different instruments in different ways, a macro strategy seeks to add value to a core portfolio of long stocks and bonds. I bring this up because a fund we manage was recently re-classified by Morningstar from Multialternative into a newly created category, Macro Trading. To avoid a recession in the UK, the British Prime Minister, John Major, decided to break the link between the British Pound and the Deutschemark. In this case, the high interest rates required by Germany to control inflation needed to be matched or bettered by the Bank of England, but the required 12% interest rates were going to choke off an already weak United Kingdom economy. ![]() Soros vs the Bank of England is a classic macro trade – looking at the conditions of the macroeconomy and trying to identify prices which are not consistent with the fundamentals. Many investors, most famously George Soros, thought that the situation was unsustainable and kept selling until the Bank of England gave up and the UK dropped out of the ERM and broke the link to the mark, netting a huge profit for those who been on that side of the trade. If you tried to sell pounds below a certain level, the Bank of England (the central bank of the UK) was obligated to come into the market and buy. In September 1992, the British pound was fixed to the Deutschemark through the European Exchange Rate Mechanism (ERM), a precursor to the Euro we know today. Let’s look back on a historic, discretionary macro trade:
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