Interest Rates and The Macro Trader
Trading any and everything macro traders look for asset classes that have sufficient liquidity and then trade them when they can find a great risk to reward opportunity. They will trade stocks, bonds, currencies, and commodities when they think that they have an edge.
One of the macro traders favorite asset classes are bonds. Also known as fixed income there has been a lot of research that shows that macro traders do best when interest rate trends change direction. Whether rates are going up or down macro traders outperform as long as there is an upward or downward trend.
Interest rates to go up one month, down one month, and then back up the next month. No, instead they tend to move in relatively smooth trends with the very rare blip where a central bank quickly reverses course.
Worldwide central banks are trying to manage entire economies. In so doing they cant turn on a dime and instead are forced to guide the huge cruise ship in a smooth manner. Instead of changing their minds every meeting they instead will raise three, four, even ten times in a row before pausing for a while and then typically reversing course and easing rates several times in a row. It takes a while to change the growth of a nation and this time is where macro traders gain a significant part of their edge.
By watching the moves of central banks and the economy traders can better forecast what is likely to happen. By not trying to pick the exact tops and bottoms macro traders can more safely generate their returns. Sometimes the central bank will only lower rates a few times before embarking on a new tightening cycle but typically these trends lasts months and months if not years and years which helps to generate even higher returns.
These opportunities are available in several markets since interest rates, also known as the cost of money, effect all asset classes. You can find abnormal profits in stocks, bonds, commodities, and currencies depending on what is happening with interest rates.
One of the classic trades is to go long zero coupon Treasury bonds when rates are to be cut and to short them when rates are headed back up. By doing this a macro trader can earn substantial profits and if they use leverage they can make even more. While there are several potential risks involved in the trade the primary one, especially in a easing cycle, is simply that of interest rates.
Global macro traders are the kings of interest rate trends and profiting from them. If you want to generate higher returns with less volatility then it pays to track rate trends and position yourself accordingly. One other bonus is that in this electronic age central banks are becoming more and more transparent, making our jobs all a lot easier. - 23221
One of the macro traders favorite asset classes are bonds. Also known as fixed income there has been a lot of research that shows that macro traders do best when interest rate trends change direction. Whether rates are going up or down macro traders outperform as long as there is an upward or downward trend.
Interest rates to go up one month, down one month, and then back up the next month. No, instead they tend to move in relatively smooth trends with the very rare blip where a central bank quickly reverses course.
Worldwide central banks are trying to manage entire economies. In so doing they cant turn on a dime and instead are forced to guide the huge cruise ship in a smooth manner. Instead of changing their minds every meeting they instead will raise three, four, even ten times in a row before pausing for a while and then typically reversing course and easing rates several times in a row. It takes a while to change the growth of a nation and this time is where macro traders gain a significant part of their edge.
By watching the moves of central banks and the economy traders can better forecast what is likely to happen. By not trying to pick the exact tops and bottoms macro traders can more safely generate their returns. Sometimes the central bank will only lower rates a few times before embarking on a new tightening cycle but typically these trends lasts months and months if not years and years which helps to generate even higher returns.
These opportunities are available in several markets since interest rates, also known as the cost of money, effect all asset classes. You can find abnormal profits in stocks, bonds, commodities, and currencies depending on what is happening with interest rates.
One of the classic trades is to go long zero coupon Treasury bonds when rates are to be cut and to short them when rates are headed back up. By doing this a macro trader can earn substantial profits and if they use leverage they can make even more. While there are several potential risks involved in the trade the primary one, especially in a easing cycle, is simply that of interest rates.
Global macro traders are the kings of interest rate trends and profiting from them. If you want to generate higher returns with less volatility then it pays to track rate trends and position yourself accordingly. One other bonus is that in this electronic age central banks are becoming more and more transparent, making our jobs all a lot easier. - 23221
About the Author:
If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro investing advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.
posted by X - Men @ 4:19 AM
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