sbro
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sbro asked in Business & FinancePersonal Finance · 1 decade ago

What's a hedge fund? (in simple terms please)?

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  • Anonymous
    1 decade ago
    Favorite Answer

    a fund where a few high rollers (unlike 99.9% of the folks) pool there money and go for company that they think as the makings to be great but needs something to get it kick started -- not for the small investor or faint of heart!!!!

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  • Anonymous
    1 decade ago

    We need to take this in stages.

    As well as stocks and shares, there are derivatives. These include contracts to buy or sell particular shares in the future, or options to buy or sell at a particular price.

    You can use derivatives to avoid losses if the stock market falls. This is called hedging. Hedge funds use derivatives as well as stocks and shares so that they can make money whether the stock market rises or falls.

    Another trick used by hedge funds is selling short. That basically means selling shares you don't have. The practice is quite legal provided you buy the shares back by the end of the monthly account. If the price has fallen,you've made a profit.

    With all these tricks, hedge funds have the potential to provide some very impressive returns. However, they are high risk, and if the managers get it wrong, they get it disastrously wrong.

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  • 1 decade ago

    Here is a video explaining what a hedge fund is: http://richard-wilson.blogspot.com/2007/11/what-is...

    Here is a text description of a hedge fund: http://richard-wilson.blogspot.com/2007/10/what-ar...

    I hope that helps.

    - Richard

    Hedge Fund Blogger

    Source(s): My hedge fund blog online at http://richard-wilson.blogspot.com. I have over 200 hedge fund articles within this blog.
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  • 1 decade ago

    An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

    Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.

    For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies.

    It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market.

    Source(s): investopedia.com
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  • 4 years ago

    You give your money to a "manager" who invests it for you. He will invest in certain things but he will always "hedge" his bet so he can never lose more than 5% of the investment. If it goes up in value, he wasted his money by "hedging". Most hedge fund managers invest in things that pay a very small profit. It is small in percentages. But if you put $Billions of dollars into a small percentage, you can make a lot of money.

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  • 1 decade ago

    for most of us its the money we put aside to trim hedges with and do some landscaping. for others its a high risk,volitile fund for a select group of financially well to do people. most people are warned to stay away from them.

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  • Anonymous
    1 decade ago

    A fund that is deversified with big name corporations that require minimun 1 million to invest.

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