When word is broken down, a Hedge Fund is made up of two words: hedge, which means “to protect money,” and fund, which means “to invest.”
‘A pool of money’ refers to a pool to protect your money.
This definition, on the other hand, only applied in the early days of its existence.
Hedge Funds’ trading technique has evolved throughout time, becoming riskier and more aggressive as they began to trade both buying and selling the market.
Hedging is a risk-management technique for financial assets.
A diversified portfolio is a typical and simple method of hedging.
When you have a diversified portfolio, you minimise the chances of taking a big blow during a loss-making event.
Finally, while hedging might help you decrease your risks, it also lowers your profits.
A hedge fund is not regulated in the same way that traditional mutual funds are. The stakes are higher, as is the reward. However, there are also significant losses on the downside.
Unless you are a certified investor, you cannot invest in a hedge fund.
Hedge funds use a lot of leverage to invest their clients’ money.