Over the last thirty years global macro investors have been some of the most consistent and successful investors in the world. I fact as a group they have the highest Sharpe ratio of any trading style in most hedge fund databases. In this article we will go over a few of the different reasons why this is.

Since global macro trader trade anywhere they can take advantage of any opportunity. In fact that is a good way to describe global macro they are opportunistic and truly capitalistic. Many traders focus on one segment of the financial markets, but global macro focuses on the markets.

What else separates global macro traders from most other traders and trading styles? Well all successful investors have to have some decent risk management but with global macro you are often levering up and or playing in some of the faster moving assets so it is imperative that you are a risk management freak. If you don’t look at risk then risk will end you.

All that aside one of the best reasons to look global and to think top down, the very definition of global macro, is so that when you formulate an investment theme you can trade all the way through it. For instance if you put together a potential scenario that has commodities doing one thing, then it bleeds over into the economy and makes bonds do something, all the while having some stocks participate, etc. then wouldn’t you want to be part of the whole process? After all you just spent a bunch of time figuring out the whole cycle.

So instead of only trading part of the theme, wouldn’t it be nice to be there for the whole thing? You can trade through the whole cycle and likely make a lot more money then just looking for the next idea.

On the other hand if you are a global macro trader you can take advantage of the entire path. If you saw the housing bubble coming you could short the homebuilding stocks, then go and short the mortgage backed securities, then go long Treasuries as the Fed lowered interest rates, and then finally you could come back and buy some of the mortgage backed securities when they became very beaten down and cheap.

The path makes sense and yet we see trader after trader just stick to one asset class and not take advantage of all the opportunities out there. If you are successful at trading and therefore have a solid respect for risk, you can become a good global macro trader.

As you can see the benefits and opportunities to being a global macro trader are very powerful and can help you to maximize your returns, all the while using strict risk management practices. If you want to maximize your returns then it is worth your while to look at global macro trading and global macro investment themes.