The most basic investment requirement is absolute income, that is to say, whether profit is a single income indicator; In contrast, traditional funds generally only pursue relative returns, that is, the level of returns relative to market indicators. For example, if they outperform the market, they will get relative benefits. In terms of operation method, the former will use hedging tools for two-way operation, while the latter's operation direction is generally single.
In terms of investment ideas, hedge funds can be divided into macro type and relative value type. The macro type is represented by Soros's quantum fund, which mainly analyzes macro dynamics and pays attention to the overall development trend of the market. Relative value hedge funds mainly invest in various stocks, securities and financial derivatives. The failed long-term capital management fund is a typical representative of this type. Because such funds can carry out leveraged financing, once the forecast is wrong, the risk is extremely high.
In the overall rise, hedge funds can get the expected annualized return on investment as long as they follow the broader market, but they must hedge their risks in time when they fall, which is achieved by shorting investments.
Hedge funds can "short-sell" the stocks they invest in when the stock price falls, and use high put options or blue-chip stock index futures to close their positions at a low level to obtain the expected annualized income of the price difference to make up for the loss of the stock price decline. "The degree of risk should be assessed according to the portfolio. If you have a lot of stock portfolios, a stock portfolio is falling, but you still want to hold these stocks, then you can short the market futures index, and you can hedge this part of the losses and risks.