explain how hedge funds work?

Answer 1

My understanding is hedge funds are designed to make money in rising and falling markets by using financial instruments such as futures/options/swaps etc. The term hedge refers to the fact that the risk of an event occuring has been covered to prevent or limit losses.

Answer 2

A hedge is an investment2 to balance out an investment1, so that you are not exposed to the risk in investment1. For example, you are a gold mine. The price of gold is volatile, and you want to focus your attention on mining gold, not watching the gold price. So you hedge your production of gold, by selling forward in paper trades. (I.e. you would typically not deliver the physical gold you have sold.) So now you are certain what your income will be in the future, for each ounce you sold.

Then as you actually produce the gold, you enter into physical sales, and simultaneously a paper purchase. In this manner your purchase and sale leaves you net in the same position.

You "cancel" the paper purchase and sale, and deliver the gold to the physical contract.

That is in very simple terms, what a hedge is. A Hedge fund is a fund that invests in these kinds of paper contracts, because they are willing to accept and manage the (price) risk, while leaving the mines to concentrate on what they are best at.

There are a wide variety of funds, with different strategies. They are not inherently risky funds, but because these contracts can be highly leveraged, the potential for big profits is equalled by the potential for big losses. If they are not properly *hedged* themselves.

Answer 3

A hedge fund is often an actively traded leveraged fund it truly is restricted to about 2 hundred purchasers with an funding of a minimum of $250,000 in accordance to US guidelines. usually a hedge fund costs a 2% administration value in step with year plus 20%-50% of the income contained in the fund. .

Answer 4

hedge fund is simply a fancy name for a managed fund that usually invests in very high risk investments, or in investments you could not get through the normal stock market. You usually have to invest at least $1 mil just to get into the fund....and alot of times the fund pockets 20% of all the profits they make with your money.

Answer 5

i think its the pot of money the council put aside for when cars go through a hedge when they crash

Answer 6

I think it's like where people put money into getting more hedgerows in the countryside, because thats where the animals live and hide and that.