what is a hedge fund?

Answer 1

If I were farming, and my crop was traded on the commodities markets, if I presold contracts to protect a good current price against a possible bad future price, or if I bought contracts to protect against the loss of a crop--I hedged.

If I were playing a common casino game, and realized that a red number hadn't won in several plays, I would be interested in betting red, in general, or a number that was red. If I further realized that all of the last several numbers were even, then I might be interested in also betting Odd. I hedged.

If I were investing, and thought that stocks of hot dog makers were going to be big, I might also buy stocks of companies that made condiments like ketchup and mustard or relish. If on the other hand, I worried that my stocks in hot dog makers might tank, and I bought stock in pizza places (can you tell I'm hungry right now?) as well. That is hedging.

To some, asset allocation schemes are hedges (distributing money across different industries, spreading funds across different types of investments: CDs, bonds, real estate, and stocks). To others, they use deriviatives like spreads and straddles and options, both calls and puts to hedge.

There's an old saying, "you can't have it both ways". Hedgers that pick competing directions correctly (One of my economics professors made, as he called it, "spending money" by simultaneously selling one grain and buying another specific grain because, then but not so often today, the price of one tended to fall when the price of the other tended to rise, it was a seasonal thing) can sometimes win both ways. The common situation is that if both rise, or if both fall, at the same time, then one will likely do better, or worse, than the other, mitigating the losses. Still, and this sinks many hedge funds, what if both are going in adverse directions at the same time. If I thought, for whatever reason, that high gas prices would make oil companies rise, but reduce tourism, so that I bought oil companies and shorted hotels, yet the result was instead that oil companies tanked and hotels somehow surged--then I lost both ways.

Answer 2

It is a pooled investment where very rich people send lots of money to (supposedly) very smart money managers who then are supposed to make these rich people a lot richer. However, don't worry ... if your hedge fund fails, a big investment bank will apparently bail you out so that you don't have to face the consequences.

Okay. Enough cynicism. A hedge fund is like a mutual fund in that a money manager will purchase securities on behalf of the investors. However, unlike a true mutual fund, a hedge fund is not bound by the rules of the SEC and is free to invest in a wide variety of securities (stocks, bonds, loans, mortgages, derivatives like futures contracts and stock options, gold, commodities) or can even sell short securities. It's kind of like Outback Steakhouse: No rules, just right! Since hedge funds often invest in risky and speculative securities, there is a rule that an investor must have at least a certain amount of money (like $2 million or more) in order to participate, and that no more than 100 people are in each hedge fund.

Answer 3

Mutual fund is gathering money from diverse human beings to form a pool. The mutual fund supervisor is making use of that pool of money for investment. in spite of the indisputable fact that, his investment is particular via the regulation in accordance with the define and the character of the fund. The element of the fund is illustrated in the 'prospectus'. Hedge fund supervisor has his very own consumers. The consumers provide the money to the govt to take a place on their behalf. The minimum quantity is often $1M in keeping with customer. The hedge fund notably lots assure their return, 24% a 300 and sixty 5 days. The investment isn't regulated. The hedge fund supervisor can positioned money into regardless of investment motor vehicle he see in positive condition, shorting promoting, thoughts etc. Hedge fund is a lot, lots volatile.

Answer 4

I have written over 100 articles on what a hedge fund is and different hedge fund trends that I'm seeing right now. They are all online through my "Richard Wilson Hedge Fund Blog" and can be found through my personal site:

http://www.richardcwilson.com

Answer 5

http://www.magnum.com/hedgefunds/abouthedgefunds.asp

everything you need to know.
good luck