Can anyone explain what hedge funds are & the risk?

Answer 1

Hedge Funds use very complex tactics to make money.

For example, they sell short stocks. (Mutual Funds cannot sell short stocks) they buy foreign currency and so on.

Hedge Funds is the ultimate risk and you tipically need at least $10,000,000.00 USD.

If you are not a millionaire already I suggest you to stay away from Hedge Funds.

Top 5 Answerer in this category.

Answer 2

A hedge fund is an investment company that (1) is structured as a domestic limited partnership or an offshore corporation, and (2) pays the investment manager compensation that includes a performance fee (typical hedge fund manager's fee schedule is 1% of assets under management annually plus 20% of all profits made during the year).

Risks vary depending on what the fund invests in. There are many different strategies hedge funds use; some (for example, fixed-income arbitrage or equity market-neutral) are relatively low-risk, others (such as emerging markets) are relatively high-risk. There are also multi-strategy funds that use multiple strategies and funds of funds that invest only in other hedge funds.

Answer 3

The word 'hedge' in hedge funds is a misnomer.

Hedge funds are any private investment group, usually a limited partnership. They used to be groups that traded in some sort of long/short or otherwise hedged trade. Convertible bond arbitrage may be the classic hedge fund strategy. Now the strategies and instruments used defy description; there are just too many of them.

Hedge funds usually avoid pass through taxes by relying on 1 of 2 tax code exemptions that limit the number of limited partners and the income/net worth of the partners.

Each fund and strategy has its own risks.

One more thing, Jim who answers below, is completely wrong.

Answer 4

Hedge funds are pretty risky. Larger investors usually use them to "hedge" their invetments. Basically a hedge fund is betting that a particular stock or sector is going to go down in value. Some hedge funds have even been accused of spreading false rumors about a stock, so that the stock will go down. I'd stay away from them.

Answer 5

A hedge is an investment2 to stability out an investment1, so that you're literally not uncovered to the prospect in investment1. operating example, you're a gold mine. the cost of gold is risky, and also you want to concentration your interest on mining gold, not observing the gold cost. so that you hedge your production of gold, by using promoting ahead in paper trades. (I.e. you ought to frequently not provide the actual gold you've bought.) So now you're certain what your earnings will be in the destiny, for each ounce you bought. Then as you actual produce the gold, you enter into actual sales, and concurrently a paper purchase. in this kind your purchase and sale leaves you internet interior of a similar position. You "cancel" the paper purchase and sale, and provide the gold to the actual settlement. that's in extremely simple words, what a hedge is. A Hedge fund is a fund that invests in those kinds of paper contracts, because they are prepared to settle for and take care of the (cost) possibility, even as leaving the mines to spotlight what they are ideal at. There are a great type of money, with diverse recommendations. they don't look inherently risky money, yet because those contracts must be pretty leveraged, the skill for giant salary is equalled by using the skill for giant losses. in the adventure that they don't look precise *hedged* themselves.

Answer 6

Only accredited (wealthy) investors can invest in hedge funds. They are basically allowed to choose any strategy to make money, including shorting stocks and options and futures. Very risky, but the idea behind only accredited investors is that they could still afford to live if it didn't work out.

Answer 7

Oh Boy! is right and the rest of these dopes are wrong.