Global Macro and Managed Futures

Question 1

What are Discretionary Strategies?

What are Systematic Strategies?

Answer 1

Discretionary strategies allow the trader to use personal judgement in making trades (typically using fundamental analysis). Global macro strategies are considered discretionary strategies.

Systematic strategies rely on strict adherence to rules when making trading decisions (typically using technical analysis). Managed futures strategies are considered systematic strategies.

Question 2

Who prefers discretionary strategies? Who prefers systematic strategies?

Answer 2

Discretionary trading strategies: Macro funds

Systematic trading srategies: Managed futures

Question 3

What is technical analysis,

What is fundamental analysis?

Answer 3

Technical analysis: A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Fundamental Analysis: A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors.

Question 4

1. What are Global Macro (Macro) funds?
2. Give examples of Global Macto strategies

Answer 4

1. They use a top down (macro) approach to analyzing global events and invest anywhere in the world based on forecasts ofeconomic growth, currency movements, and changes in interest rates. g,c,i
2. Currency trading, Soverign-bond trading, Japanese stock-yen trading, Thematic investing.

Thematic investing is based on secular and long-term changes in fundamental economc variables or relationships and does not rely on any particuar market or instrument. For exampel, several trading strategies have sought to profit from the rise of China.

Question 5

What are managed futures funds?

Answer 5

The strategy involves actively trading futures and forward contracts on physical commodities, financial assets, and exchange rates.

They are typically based on technical analysis

Question 6

What is meant by systematic trading?

Answer 6

Also called Black-box model trading, they are based on computer programs.

Question 7

What are the 3 categories of SYSTEMATIC trading strategies?

Answer 7

1. Trend following strategy;
2. Non-trend following strategy;
3. Relative value strategy

NTR

Question 8

What is meant by trend-following strategies?

Give examples

Answer 8

Trading strategies that attempt to exploit predicatable price patterns after the trend has begun

Moving average and Breakout

Question 9

What is meant by momentum?

What is opposite of momentum?

What is meant by random walk?

Answer 9

Degree to which security price movements are followed by subsequent movements of the same security.

Mean reverting

Price movements are independent from current or past prices

Question 10

What are 3 moving averages used in trend-following strategies?

Answer 10

1. Simple moving average;
2. Weighted moving average, arithmetic average with recent dates getting more weight
3. Expoenential moving average, use Lambda the smoothing factor

SMA, WMA & EMA

Question 11

What is meant by channel breakout strategy?

Answer 11

Relates to Managed futures:

• A long futures position is taken once the futures price breaks through its high during a specified look-back period.
• A short futures position is taken once the futures price breaks through its low during a specified look-back period.

Question 12

What is meant by non-trend following strategies?

Give examples

Answer 12

They atttempt to take advantage of perceived inconsistencies in futures prices.

Pattern and Trend

Pattern recognition (non-trend based pattern) and

Counter trend strategies (Trend will reverse)

Question 13

What is meant by Relative Strength index?

Answer 13

It is an index to determine if the market for a security is overbought or oversold.

RSI = 100 - 100/(1+U/D) = 100U/(U+D)

U = average of up price changes during the last n days

D = average of down price changes during the last n days

Buy if RSI <30, the stock is oversold

Sell if RSI >70, the stock is overbought

Question 14

What are the risks of macro investing?

Answer 14

Market, Event and Leverage

Question 15

Name 2 popular Global macro indices

Answer 15

• CSGMI (Credit Suisse Global Macro Index)
• HFRI Macro Index

Question 16

With respect to MF’s, what are:

CEA

CFTC;

CPO;

CTA

How are managed futures accessed by investors?

Answer 16

CEA: Commodity Exchange Act was enacted in 1974 to regulate Futures industry.

CFTC, Commodities and Futures Trading Commission was establsihed and defined CPO (Commodity Pool Operator) and CTA (Commodity Trade Advisor)

Investors access MF investing via Managed Accounts and Coomodity Pools.

• Managed Accounts are for wealthy individuals;
• Commodity Pools are Public (like mutual funds) and private (like hedge funds)