How exactly do hedge funds operate?
You always hear of hedge funds “adding/cutting positions” and “annual portfolio holdings” etc. These sound like long term investing strategies to me, but I always thought that hedge funds were into aggressive day trading/scalping etc; I just cant find any info on their exact method of making money. So what are the daily routines or day to day operations of a hedge fund specifically?
I already know what a hedge fund is but basically just trying to find out what their exact strategies are.
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about 1 year ago
Hedge fund is basically like a mutual fund that doesn’t have as many rules, and just as there are many types of mutual funds there are many different types of hedge funds.
One of the rules that makes a difference is that hedge funds have less of a requirement to tell people how they’re making their money than a mutual fund that has a regulator to answer to on a regular basis.
In theory a hedge fund is limited to a small number of sophisticated investors. In truth, they can really have a large number of investors, but there are at least income requirements in order to invest in a hedge fund.
about 1 year ago
As nobody can time the market, hedge funds usually do arbitrage investing and use high leverage for the profit boost.
about 1 year ago
Hedge funds are very risky they are entirely unregulated. This means they can invest in anything, anywhere. This risk is why you must make $200,000 a year or have 2 million in the bank. Often to reduce the risk the hedge-fund will hedge their investment, meaning they will buy a stock and short it at the same time. Shorting is betting the stock will go down. The small difference that they earn in this transaction can only be profitable with large amounts of money. This is why hedge funds are in major debt (leveraged). Management also takes a commission on average of 20%. If you want learn about hedge funds and risk, I suggest When Genius Failed. This book is about LTCM which just about went under in 1998 and took the whole banking industry with it.
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