#DEFINE HEDGE FUND PROFESSIONAL#

There are significant numbers of other different TYPES of hedge fund (perhaps quants being the most famous) but when people talk about the generic hedge fund, those shorting stock-pickers are what people mean.Īlso, off topic, but this whole GME thing is somewhat hilarious because USUALLY the hedge funds are the bad boys being pilioried by the press. I would just add a TLDR: typically the main difference between a mutual fund and hedge fund is that the hedge fund can short and often uses leverage.įor all the household name stock-picking hedge funds, they are really just less regulated mutual funds that make short bets and use leverage. It's more and more just a generic label used by private funds with varying (and sometimes opposite) goals and investment strategies. Worth noting though that while the name 'hedge fund' originated in the 50s and 60s because such funds would optimize their investments to reduce risk, today's hedge funds are mostly the opposite. They also frequently take short positions (bet that a stock will go down instead of up) in order to 'hedge' against market downturns or take advantage of failing companies. They often use large amounts of borrowed money (aka leverage) and so are generally exposed to a lot more risk than normal funds. Hedge fund managers use very aggressive investment techniques and invest in a wider array of products than just stocks or bonds – like options and other derivatives, real estate, currencies, art, precious metals or really anything else that can be bought and sold. They are also far less regulated than publicly accessible funds. They are specialized and exclusive versions of mutual funds open only to institutional investors or very high net worth individuals. The basic idea is to buy hundreds or thousands or more securities together to not be affected by fluctuations in a single one. There are different types of such funds, mutual funds being the most common – either actively managed by an investment manager or tracking some index like the S&P 500. Then there are investment companies which offer pooled funds, where we can put in money and they will bundle it together and trade common securities (stocks, bonds etc.) for us, hopefully getting positive returns while saving us from having to do the work ourselves. It may also be difficult to verify representations you receive from a hedge fund.You and I as individual investors can trade a company's stock, bonds, commodities etc. Without the disclosure that the securities laws require for most mutual funds, it can be more difficult to fully evaluate the terms of an investment in a hedge fund. For example, hedge funds are not required to provide the same level of disclosure as you would receive from mutual funds. Hedge fund investors do not receive all of the federal and state law protections that commonly apply to most mutual funds. Hedge funds, however, are subject to the same prohibitions against fraud as are other market participants, and their managers owe a fiduciary duty to the funds that they manage. Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file reports with the SEC. Unlike mutual funds, hedge funds are not subject to some of the regulations that are designed to protect investors. Many hedge funds seek to profit in all kinds of markets by using leverage (in other words, borrowing to increase investment exposure as well as risk), short-selling and other speculative investment practices that are not often used by mutual funds. Hedge funds typically have more flexible investment strategies than mutual funds. Like mutual funds, hedge funds pool investors’ money and invest the money in an effort to make a positive return. The Laws That Govern the Securities Industry.Researching the Federal Securities Laws Through the SEC Website.Structured Notes with Principal Protection.Smart Beta, Quant Funds and other Non- Traditional Index Funds.Mutual Funds and Exchange-Traded Funds (ETFs).

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#DEFINE HEDGE FUND PROFESSIONAL#

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Define hedge fund