Hedge Fund 101 - Make Money with Hedge Funds

Investors are always looking for the best investments that will yield the most profit. Any investor who can afford the extra cost should consider investing in Hedge Funds. Hedge Funds were started in 1949 by Alfred Winslow Jones, who pioneered non-traditional investment strategies. Jones innovated this new investment strategy by selling short stocks, while buying other stocks (long stocks). Hedge Funds are very similar to Mutual Funds, except that there are fewer regulations on Hedge Funds. As a result, Hedge Funds usually require a much larger investment.

What Are Hedge Funds?

Hedge Funds can help investors make more money with higher-risk investments. Other techniques used in Hedge Funds include "leverage," which is borrowed money to trade in addition to the capital provided one's investors. The usage of Hedge Funds also requires an incentive fee. An incentive fee is a fee based on a portion of the client's profits as opposed to a fixed percentage of assets. This fee is then invested and ideally will gain the investor more money.

Generally, companies are the owners of Hedge Funds because most people do not have enough money to meet the minimum investment required to have a Hedge Fund. In 2004, Hedge Fund investments passed the $1 trillion dollar mark. In mid-2004 about 39 companies shared the total Hedge Fund values of 1.1 trillion dollars.

Common Techniques for Investing

There are also other techniques for investing with Hedge Funds. One way is to invest in a company just before a major merger. If one gains knowledge of a merger, and buys large amounts of share in a company that is about to merge, the shares go up greatly once the merger occurs. This is, unfortunately, a very high-risk investment strategy because some mergers may not occur.

Other techniques include selling short, which is where one invests in seemingly undervalued securities, trading commodity and FX contracts, and taking advantage of the separation between the current market price and the highest purchase price in events such as mergers.

Why are Hedge Funds Beneficial?

Hedge Funds are also beneficial because of their high level of security. Hedge Funds are private, between individuals, and do not have to be made known to the government or other companies. Currently, Hedge Funds do not need to be registered with the SEC. Hedge Funds are also based in places with less regulations (I.E. The Cayman Islands, The Virgin Islands, etc). However, one drawback of Hedge Fund security is the fact that it looks suspicious to have secretive investments. For this reason, many companies and investors are criticized for being involved with Hedge Funds.

Conclusion

Hedge Funds are a very risky investment, with a large payoff. In order to invest in Hedge Funds, one must be prepared to make a very large investment. Hedge Funds are similar to Mutual Funds, except there are less regulations on Hedge Funds. Less regulations lead many people to be suspicious of investors who invest in Hedge Funds. However, if one is willing to take the risk, Hedge Funds can certainly pay off!

Scott Hillsworth enjoys writing about financial topics. Learn more at Hedge Funds Blog, a weblog with daily hedge funds research and news.

---

Retirement or Financial Freedom?

In the past most people never retired. They died. The... Read More

5 Ways To Protect Your Bond Portfolio From Rising Interest Rates

The Federal Reserve recently raised its target federal funds rate... Read More

Have You Ever Seen A Map of the World Turned Upside Down?

For those accustomed to viewing things a certain way, it... Read More

Numismatics are for Collectors, Not Investors

As a precious metals investor, you may heard much about... Read More

Investing and Asset Allocation

Sometimes you spend sleepless nights worrying about which stocks to... Read More

Trading Tips No 4: Technical Analysis The Holy Grail Syndrome

Everyone knows that the Holy Grail of investing and trading... Read More

Have Analysts Gotten Honest?

It caught my attention when I heard an analyst on... Read More

What is an Investor Ready Business Plan

A Business Plan, as all good entrepreneurs starting out in... Read More

Variable Annuities

You know all the articles you read about annuities that... Read More

The Real Cost of a Bad Habit

What is the value of a good habit? Think of... Read More

Sell Discipline for Investors: Importance and Execution

Investors usually don't have an aversion to buying an asset.... Read More

Discipline in Trading and Investing

The one thing I can think of that most affects... Read More

What Age Should I Start Saving For Retirement?

Ask this question to 100 people and you will receive... Read More

Economic Survival in the 21st Century - the Three Key Questions to Ask

In this "special report", I want to pose a few... Read More

Bearish or Bullish?

If you are interested in stock investing and the stock... Read More

Oil and Gasoline Price Uncertainties

The Light Crude Continuous Contract hit an all-time high at... Read More

Investing & Online Stock & Share Trading: Money & Risk Management - Atkinson Portfolio Planner (1)

This article was originally featured in Daryl Guppy's 'Tutorials in... Read More

Investing in New Zealand - Learn how to Find Unique Investment Opportunities

Investing in New Zealand might be much easier than investing... Read More

Is Starting A Business For Me? What To Consider Before Starting A Business

Do you have the right temperament?Starting a small business is... Read More

Reasons For Joining An Investment Club

Whether you're a novice investor or an experienced stock picker... Read More

Copy Cat or How to Use a Successful Trading System

How many books have you read about successful traders? How... Read More

Choosing A Financial Advisor

With so many financial advisors trying to woo you with... Read More

Trading Systems

A trading system consists of a set of rules for... Read More

Keeping It Interesting

Some lines from a movie never leave your mind; I... Read More

The Economy Is Not The Stock Market

Several days ago, the Commerce Department reported that May's factory... Read More

An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of... Read More

Get Wealthy With the Rule of 72

When it comes time to retire how many people would... Read More

Success Trading for New Traders: What Does Bid and Ask Mean?

Do you ever wonder exactly what's going on in the... Read More

Investing Offshore for Retirement

As an expatriate you are in a privileged savings and... Read More

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do... Read More

Global Markets: A Window on the World Economy

Expectations drive the market. Every stock price is driven by... Read More

Franchise Opportunity Sellers Beware; franchise buyers lie on forms?

It seems completely absurd that franchise buyers lie about their... Read More

Investors: Avoid These 5 Common Tax Mistakes

For many investors, and even some tax professionals, sorting through... Read More