The term “hedge fund” can actually be somewhat misleading – not many hedge funds actually hedge their investments. Hedging is a strategy that reduces the risk of a business transaction. Hedge funds use many different investment strategies, but they often engage in high-risk trading because their goal is to make as much money as possible as quickly as possible, which is different from, say, an index mutual fund that just tries to outperform an index (for example the S&P500). What really distinguishes hedge funds is how hedge fund managers get paid: management fee plus a performance fee.
Posts Tagged ‘hedge’
How does a hedge fund manager actually make money?
Friday, October 23rd, 2009A Hedge is…
Monday, August 10th, 2009A hedge is a financial strategy used to neutralize the risk of a certain bet. For example, an investor might buy a security in the health-care sector while hedging his or her bet by purchasing another security in the finance sector. The reason for the difference in investments is that if the value of one security goes down, the other might still go up. In plain terms it means covering your investments.