what is hedge fund?

Answer 1

Do you watch The Riches?

Anywho, here:

"A special type of investment fund with fewer restrictions on the types of investments it can make. Of note is a hedge fund's ability to sell short. In exchange for the ability to use more aggressive strategies, hedge funds are more exclusive, ie, fewer people, usually only the wealthy, are allowed to invest in hedge funds."

See source for more definitions. Hope this helps!

Answer 2

The word Hedge... as in hedge your bet ... means to take out some sort of insurance incase your wrong. Some mutual funds also short stocks, there are also bear market funds, that both short and buy things likely to do well in bear markets..... what makes a hedge fund different is they try to make money buy both going long and short at the same time.(in addition to the regs like the other poster said) For example they might think oil is going up so they go long oil and try to find a hedge against that that will do well if they are right and not lose if they are wrong .... like since the airlines use a lot of fuel they might short airlines.. if they are right they make out twice if wrong they use a hedge that hopefully moves less to the downside than putting it all on oil. The reason they are sucsessfull for the most part is they are right more than wrong and when they are wrong they lose a lot less than they make when they are right. In a simplistic explanation ... they make 20 percent when right and lose 5 percent when wrong so they don't even need to be right all that often to make decent money. Goldman Sacks a huge "bank" is now considered to be a hedge fund by most experts rather than an investment bank because they have adopted this principle as much as the law allows them to and much more than most banks.