Gliner, Global Macro Trading

A few months back a reader asked me to recommend a good introductory book on macro trading, and I was stymied; I couldn’t think of a single title. Greg Gliner, a member of the global asset allocation team at AQR Capital Management and formerly an analyst at Tudor Investment Corporation, has set out to fill that void with Global Macro Trading: Profiting in a New World Economy (Bloomberg/Wiley, 2014).

The book assumes practically no knowledge either of trading vehicles or of trading itself. Imagine a fresh college graduate who majored in, let’s say, history and who has just been hired by a global macro firm. He knows next to nothing about bonds, commodities, foreign exchange, or international economics. He barely knows his way around equities and draws a blank when asked about technical analysis. Presumably, since the firm took a gamble on him, he’s a quick study. They give him Gliner’s book and tell him to digest it whole before his first day of work. Then and only then is he ready to start learning about hands-on global macro so he can eventually become a productive member of the team.

As this description indicates, the book—to be more precise, the second part “Global Macro Trading Foundation”—includes chapters on foreign exchange, equities, fixed income, and commodities, as well as (not telegraphed above) the role of central banks in global macro and economic data releases and demographics. These chapters conveniently bring together in one place a multitude of information that, though for the most part readily available, is scattered across the internet.

The first part of the book deals more generally with trading, with the longest chapter devoted to technical analysis. It also has a chapter on the trading process, sizing trades, and monitoring performance. Here some tricky concepts are dealt with in a perfunctory way. Correlation gets two very short paragraphs; the Sharpe ratio, Sortino ratio, drawdowns, and VaR are dispensed with in two pages. Gliner spends a little more time on monitoring performance and offers helpful hints.

The chapter on systematic trading is appropriate for readers who have some background in the markets and who are interested in portfolio construction. It is unfortunately too brief to be more than a teaser. Gliner takes the four assets he discusses in the book (currencies, equities, fixed income, and commodities) and suggests that “there are two portfolio strategies that can be deployed in these assets: directional and relative value. Relative value is more desirable for capturing various factors over time and requires greater leverage and position sizes relative to outright directional trades.” He continues: “Each asset has an overlay of factors … that can help define the expected value of each strategy as being under- or overvalued. For purposes of this chapter we examine value, trend, carry, and fundamentals as our strategies. … One must identify the [optimal] weights of each strategy to calculate their weights relative to one another.” (p. 93) “The basic construct of a systematic model involves breaking each strategy style apart and selecting the factors for value, trend, carry, and fundamentals that gives the highest Sharpe ratio possible and lowest drawdown ex ante…. Prior to summing the four strategy styles together, one must take factors such as illiquidity, tail risks, growth, and inflation into account.” (pp. 98-99) As should be evident, systematic global macro is no walk in the park.

Global Macro Trading is a broad-based primer. It gives the reader a good sense of what is involved in this general strategy and where he needs to get up to speed.