1. What is a hedge fund?

Hedge funds originally refer to some funds, which not only hold long positions in high-quality securities in the investment market, but also hedge and reduce risks by combining short selling and financial derivatives trading. These risks include: market risk, financial risk and economic risk. Ordinary investors call such funds hedge funds to distinguish them from many traditional investment funds. Traditional funds mainly refer to funds that invest in securities, while hedge funds mostly use financial derivatives and tools and short selling to buy and sell, so as to seize profit opportunities in a sharply rising market or a sharply falling market. Generally speaking, hedge funds have some basic characteristics: 1, the investment target is vague, including futures, options and various financial derivatives and tools in addition to traditional securities; 2. More financial derivatives and tools and short selling are used for trading; 3. Pay attention to the ability of fund managers.

Two characteristics of hedge funds

Hedge funds do not have an authoritative definition. It originated in the United States in the 1950s. Generally speaking, it is a private investment institution that uses financial derivatives such as futures and options, as well as the operational skills of buying and selling related stocks and hedging risks (usually registered overseas with loose tax management in Panama). Modern hedge funds refer to investment funds with the following two characteristics: (1) most of the expenses of managers come from profit commission; (2) Adopting at least one of the following three investment strategies: investing in diversified assets; Use hedging technology; If you don't short, you must use financial leverage, such as financing from banks, to increase your bets.

Second, the types of hedge funds.

Hedge funds can be divided into five types:

Traditional type

This kind of fund is generally called stock selection hedge fund, which is an early hedge fund. Such hedge funds generally adopt a combination of long-term and short-term investment strategies. Fund managers will use part of their own funds to attract and invest in a number of stocks with profit prospects. At the same time, fund managers will also use the repeated fluctuations of the market to short some stocks that are bearish by the market. Of course, these stocks are either too high or their profits are regressing. In this way, when the stock market rises and falls sharply, the high-quality stocks it holds can make up for the stock investment losses that are short-sold because it is not optimistic about the market. In addition, managers of such funds will also buy and sell other kinds of financial derivatives and tools, such as index futures and stock options, to effectively control risks. Balance the risks of these funds.

(B) speculative

This kind of hedge funds, also known as "smart" hedge funds, fund managers seek unreasonable market prices in stock markets, foreign exchange markets and futures markets around the world from a global and macro perspective. Fund managers not only have a profound and comprehensive understanding and analysis of the political, economic and financial securities markets in some countries or regions, but also work out a set of very detailed investment and speculation plans and strategies on this basis, and then take advantage of it unprepared and take it as fast as lightning. Its investment and speculation targets can be financial derivatives such as currency, bonds, index futures and stock options. It is precisely because of its strong speculation and fierce and rapid operation that this fund has a high rate of return, but it is also risky. Soros Quantum Fund, which we are all familiar with, belongs to this kind of hedge fund.

3) Hedging type

Hedge hedge funds are very stable funds compared with speculation, with relatively small risks, and the annual return rate is generally maintained at around 10%-20%. The investment strategy of this kind of hedge fund is mainly to make use of the different prices of the same type of financial products between the two markets, that is, the price difference, and obtain the maximum income from the price difference by buying low and selling high. This kind of income risk is very small. For example, fund managers buy lower-priced stocks from the new york Stock Exchange, and then get them from the Pacific Stock Exchange and sell them at higher prices, thus profiting from the price difference.

(D) the risk of diversification

As the name implies, this kind of hedge fund adopts diversified investment methods, and invests its funds in different foreign exchange markets, bond markets, stock markets and futures markets, such as metals, energy, agricultural products (information forums), so as to achieve the purpose of diversifying risks, reducing risks and maximizing investment returns. The difference between it and speculation is that there are more medium and long-term investments, more dispersed investments and lower risks, with the aim of stabilizing income. The fund manager's understanding and thorough analysis of the whole financial market is the basis for the fund to obtain stable income.

(5) comprehensive type

This kind of hedge fund means that its fund managers spread their funds among hedge funds with different risks and returns, such as some hedge funds mentioned above. Gather the achievements of famous experts to achieve the goal of low risk and stable return. In addition, the fund unit of this kind of fund is smaller than other single hedge funds, which is more convenient for retail investors and small investors.

Third, the basic strategy of hedge fund investment

Because the performance of traditional funds in the volatile market is not as ideal as expected, hedge funds came into being. It is also because the strategy used by hedge funds is obviously different from that of traditional funds, and its performance is not closely related to the market situation. The investment objectives of hedge funds are generally vague, which increases the flexibility of fund managers in operation, so hedge fund managers can make use of almost all legal means in the market to make profits and obtain high returns. In addition to the traditional long-term holding of securities commodities, the common trading strategies are: 1, shorting securities or commodities. 2. Buying and selling stock indexes and stock options, futures or other financial derivatives and tools. 3. Invest with borrowed funds, increase investment, and achieve the goal of double return. 4. Use hedging and other methods to earn low-risk returns.