If you have been investing or are thinking of investing, you may have probably heard of the term hedge fund. Perhaps you have heard particularly about the good returns that these funds provide. Maybe you’ve learned about what a disaster it can be for the world’s financial system if these funds do not succeed. Whatever you may have heard or seen in the news and other sources, it is impossible to understand what a hedge fund really is if you don’t know the basics.
1. The term hedge is basically referring to the practice of putting a collar around your investment. On this note, a hedge fund is simply the funds that make use of options to avoid big losses. By putting a hedge on your investment, investors can actually limit potential huge loss that will be detrimental to their financial portfolio. You can see this approach being done by corporations that has foreign revenue coming in. They can guarantee the value of their investment will not drop down for a period of time by putting a hedge on their investments.
2.Another thing that you need to know about hedge fund is that it is actually an investment instrument that aims to deliver returns on your investment portfolio. This means that it includes any form of investment from stocks to bonds, real estate and commodities. Hedge fund makes use of more advanced techniques in investment like shorting, leveraging, swaps and arbitrage.
3.You also have to be aware that as an investor, you must give your full commitment in terms of both the entry and the exit periods of your minimum investment.
Understanding hedge fund can be quite tricky but these basics will certainly help get you started. To take advantage of huge returns, make sure you research more on hedge fund opportunities.