What is a hedge fund?
Hedge funds, also known as hedge funds or arbitrage funds, refer to financial funds that combine financial derivatives such as financial futures and financial options with financial organizations to take high-risk speculation as a means and for the purpose of profit. It is a form of investment fund and is an exempt market product. It means “risk-hedged fund”, and the hedge fund is called a fund, which is essentially different from the mutual fund’s investment philosophy of safety, income, and value-added.
Hedge funds use various trading methods (such as short selling, leverage operations, program transactions, swap transactions, arbitrage transactions, derivatives, etc.) to hedge, transpose, hedge, and hedge to earn huge profits. These concepts have gone beyond the traditional scope of operation to prevent risks and guarantee profits. In addition, the legal threshold for launching and setting up hedge funds is much lower than that of mutual funds, which further increases the risk. In order to protect investors, securities management institutions in North America have listed them as high-risk investment varieties, and strictly restrict the involvement of ordinary investors. For example, it is stipulated that each hedge fund should have less than 100 investors and the minimum investment amount is 1 million US dollars, etc. .
For example, in a basic hedging operation. After the fund manager purchases a stock, it also purchases a certain price and time-limited put option on the stock. The utility of the put option is that when the stock price falls below the price specified by the option, the holder of the put option can sell the stock held in the hand at the price specified by the option, thereby hedging the risk of the stock price falling.
For another example, in another type of hedging operation, the fund manager first selects a certain type of bullish industry, buys several high-quality stocks in the industry, and at the same time sells the worse stocks in the industry at a certain ratio. Inferior stocks. The result of such a combination is that if the industry is expected to perform well, high-quality stocks will rise more than inferior stocks in other industries, and the gains from buying high-quality stocks will be greater than the losses caused by short-selling inferior stocks; if the expectations are wrong, the stocks in this industry will not If it rises instead of falling, then the decline of inferior stocks must be greater than that of high-quality stocks, and the profit from short selling must be higher than the loss caused by the decline of high-quality stocks. Because of this operation method, the early hedge fund can be said to be a form of fund management based on a conservative investment strategy of hedging and hedging.