Hedge Fund

A Hedge Fund is a aggressively and actively managed portfolio of investments.  It's mission is to significantly beat the market with large profits through just about any means necessary.  To do so, Hedge Funds may take advantage of just about any investment strategy such as leveraged, long, short and derivative positions.  Hedge Funds may invest and trade in both domestic and international markets, dealing in just about any asset merchandise including stocks, options, futures, forex, and commodities.

Compared to Mutual Funds and ETFs (Exchange Traded Funds), Hedge Funds have a lot less rules and regulations to follow.  The unrestrained number of strategies and markets Hedge Funds can use potentially give Hedge Funds more opportunities to score big in the market.  But be careful.  In the hands of a inexperienced or reckless Hedge Fund Manager,  the freedom Hedge Funds have can be dangerous and lead to significant losses, not profits.

Hedge Funds are usually exclusive to high net worth individuals and investment groups.  Also, compared to Mutual Funds, Hedge Funds cannot market themselves or take money from the public  and so few people know about them.

What's In It For The Hedge Fund Firm?

Money managers of Mutual Funds and ETFs are usually paid based on how much money they manage.  Hedge Funds, on the other hand, are primarily paid based on profits.  So, the incentive for a Hedge Fund manager to be paid well is to make a lot of money every year as opposed to Mutual Funds and ETF managers, who's incentive is to have more money to manage.

Elements contributing to a hedge fund strategy include

  • approach to the market
  • particular instrument used
  • market sector the fund specializes in (e.g. healthcare)
  • method used to select investments
  • amount of diversification within the fund

Strategies can be divided into those in which investments can be selected by managers, known as qualitative, or those in which investments are selected using a computerized system, known as quantitative. The amount of diversification within the fund can vary; funds may be multi-strategy, multi-fund, multi-market, multi-manager or a combination.

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Market Details

Market Merchandise: Mutual Fund,
Players: Investment Bank, Hedge Fund Firm, Trader,
Strategies: Market Neutral, Global Macro, Directional, Event-Driven, Relative Value, Arbitrage, Equity Market Neutral, Fixed Income Arbitrage, Convertible Arbitrage, Statistical Arbitrage, Volatility Arbitrage, Risk Arbitrage,

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