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As the name implies the global macro trader focuses on everything on the globe. This might be a bog statement but it is basically true. Macro traders have to look at stocks, bonds, commodities, currencies, and the G-10 nations at the very least. Most of course look at all these asset classes across twenty to forty countries. They do this so that they have more trading opportunities and can find the best risk reward situations possible.

So if the global macro trader focuses on all of these asset classes and countries what does he or she need to know? Not only do you need to know individual market dynamics but you must understand each nations macroeconomic situation.

Probably the most well known example of a country where it is critical to understand the global macroeconomic dynamics is Japan. If you had bought a great looking value stock in 1982 you would have likely seen it climb the entire decade and then crash. Thirty years later you would be at breakeven. In the early nineties Japan became stagflationary meaning that they didn’t grow at all for year. In fact some years they were deflationary and occasionally they had inflation but it was always under one percent.

If you had put money to work in Japan without understanding the macroeconomic situation you would have lost or best case broken even after years and years of work. Stocks do not always go up and the long term in Japans case has been 30 years so far. Yes, macroeconomics are important.

Another great macro trade using macro economics was buying commodities in 2002. At that point we had not only had the dot com bust but also several years of under development in our natural resources worldwide.

If you were tuned into the macro economy you would have noticed the BRIC nations picking up considerably and gone long. You would have bought Brazil, oil, base metals, etc. as the emerging markets expanded at a very fast pace for a while.

Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.

Global macro trading and macro economics obviously are very complimentary to your account when used properly. Don’t trade in ignorance. You should instead learn everything you can and set up the best risk to reward scenarios possible.