Hedge fund
Because hedge funds are funds that use hedging transactions, they are also called hedge funds or hedge funds. It refers to a financial fund that aims at profit after financial derivatives such as financial futures and financial options are combined with financial instruments.
It is a form of investment fund, which means "risk hedge fund". Hedge funds use various trading methods to hedge and make huge profits. These concepts have gone beyond the traditional operation scope of preventing risks and ensuring expected returns. In addition, the legal threshold for launching and establishing hedge funds is much lower than that of mutual funds, which further increases their risks.
Hedge fund profit model
Typical hedge funds use leverage effect and bank credit to increase their investment funds by several times or even dozens of times on the basis of their original funds with extremely high leverage, so as to maximize their returns. Of course, due to the leverage effect, improper operation of hedge funds will also face a huge risk of excessive losses. The fund manager buys a put option at the same time and at the same price. This is because when the stock price falls below the option price limit, fund holders will sell their stocks at the option price limit, thus hedging the risk of stock price decline.
Hedging brings performance.
The fund manager's expectation is correct. The increase of blue-chip stocks is higher than that of other stock funds in the same industry, and the expected return of buying stocks will be greater than the loss caused by shorting falling stocks.
The fund manager's expectation is wrong, and the stock will fall rather than rise, so the stock of the poor company will fall more than the high-quality stock. Then the profit of short selling stocks will be higher than the loss caused by the decline in buying stocks, thus making up for the loss of buying stocks.
In short, hedge funds can diversify the risk of investment targets and play the simplest role in maintaining value.
This is all about how hedge funds make profits. I hope everyone will weigh the pros and cons and help the investment. Warm reminder, financial management is risky and investment needs to be cautious.