Are macro product markets less efficient than equities?
I'm a student in college so pardon if this is a dumb question but are the markets that macro strategies (rates, currencies, gold, etc) play in less efficient than equities markets? There's a couple reasons I ask this, in no particular order:
1. The path to become a macro investor has much less people involved and is more opaque than the path of becoming a L/S equity investor (ie. there's no pipeline of Target School -> IB/ER -> MBA? -> L/S seat). From what I've read online, people usually go into these macro trading seats because they specialized in a specific macro product at a BB's S&T desk or have some graduate level Econ/Math/Engineering degree. In contrast, many people start investing in the equity markets in high school with Robinhood and other brokers making it easy to trade.
2. The success of major macro products like oil or rates, for example, relies on calling major geopolitical events/decisions (ie. will OPEC constrain/raise supply). It's hard for most people to make these calls without deep experience and expertise on the institutions making these calls.
3. A lot of macro products have major boom and bust cycles (ie. vol trading did very well during the pandemic) and someone who wants to optimize their field of career opportunities might want to pursue a career with more long-term job availabilities.
The cumulation of all this is less people paying attention to the macro markets, making them potentially less efficient than equities.
Any thoughts on this would be appreciated. Thanks!
A counterargument to something that you mentioned is that retail tends to play more heavily in the equity markets. Leaving more room for perceived inefficiencies on the part of 'good' L/S investors. At the same time, though, there tend to be some degree of order flows in macro markets (especially true in something like commodities and currencies) that might be for much less "financial" reasons, leaving people who have been trading the space for a long period of time (purely for financial gains) to understand the intricacies with which this market operates and capitalize effectively. Overall I would probably tend to agree that macro-products are less efficient, because there are simply fewer people who understand the ins and outs of how each market works (seems like the 8 figure guarantees that pod shops supposedly make go mostly to non-L/S guys which could prove out what I am saying to a degree). Obviously the sector specialization piece helps in the L/S world, but even then you are still doing loosely the same thing.
Thanks for sharing your insights, this was quite helpful. Do you mind clarifying what you meant by "some degree of order flows in macro markets (especially true in something like commodities and currencies) that might be for much less "financial" reasons"? Is this referring to unsophisticated retail investors trading forex and causing inefficiencies that knowledgable players can exploit?
People hedge with fx/cmds for non-investment reasons.
Not sure why any of this matters to someone this young. But anyways, certain macro risk is impossible to model. If you want to call that inefficient relative to equities I guess but at end of the day it is impossible to model dont care how many talking heads claim how OPEC works. While in equities there is a reason one cannot trade on NPMI.
Thanks for the insight, I'm just asking out of curiosity that's all.
Just mean figure out what you enjoy and find interesting. The way you wrote this post is very academic and how finance profs see the world.
Macro trading is mainly about relative value strategies and most of the things you mentioned seem cool and get media attention but 80% of the time its finding relative value and grinding.
Yes less participants but less assets too.
Rough universe: 20 equities futures with decent liquidity, 10 currencies with interest rates swapsvor countrues with liquid government bonds and 30 currencies.
Vs thousands of equities
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