Hedge Funds Explained

Answer 1

A hedge fund is a type of fund which can possess either short or long positions, sell or buy low valued securities, use arbitrage, trade either bonds or options, as well as invest in additional opportunities where potential gains are foreseen.

The strategies for utilizing hedge funds vary largely with many individuals hedging against market downturns in today's economy and Stock Market. The main goal of the majority of hedge funds is to reduce risks while preserving available capital and delivering positive market returns in a variety of economic conditions. There are usually 14 different hedge fund strategies that can be utilized. Each of these varying strategies come with their own different potential returns and risks. For example, a macro hedge fund consists of an investment in bonds and stocks and other currencies in the hope of profiting from global interest and other country's economic regulations. This type of hedge fund is volatile but typically grows faster than other options, such as distressed-securities funds, which purchase the debt or equity from companies who are experiencing or recovering from a financial crisis. Other hedge funds include equity hedges which can be national or global and consist of the hedge being placed against equity market downturns.

Before utilizing one of these strategies, it is essential to know the advantages and disadvantages of each of the different hedge funds. Each type of hedge fund is wholly different and the volatility, risk, and investment returns vary largely between the types. For example, those strategies which are not linked to equity markets are usually less volatile, less risky, and can usually provide more consistent returns. A successful utilization of hedge funds will consist of varying strategies s so that the user of these funds will be able to develop stable, successful long term investment returns.

In short, hedge funds are not all the same. In fact, they are exceedingly different. The majority of hedge funds are placed against downturns, which has become increasingly popular over the last several years due to the heated stock markets and increasingly volatility. However, contrary to popular belief, not all hedge funds are exceedingly volatile and, instead, are able to provide constant returns.