Hedge fund is an important investment method and tool in China's investment market. Many investors have heard the name of hedge fund and know that hedge fund has the function of risk hedging. So what is hedge fund? How do hedge funds make money? Today, Xiaobian will take you to know something about hedge funds.

what exactly is a hedge fund?

Because hedge funds are funds that use hedging transactions, they can spread the risks of investment targets and play a role in maintaining value. It is a financial fund for profit after financial derivatives such as financial futures and financial options are combined with financial instruments.

In common parlance, it is a form of investment fund, which means "risk versus hedge fund". Hedging is an investment to reduce the risk of an investment. Its essence is an investment strategy, which uses financial derivatives such as futures and options to buy one and sell the other at the same time, so as to "wash away" the risk at a certain cost, thus achieving the purpose of avoiding investment risks.

how do hedge funds make money?

1. A typical hedge fund uses leverage effect and bank credit to increase investment funds several times or even dozens of times on the basis of its original fund amount with extremely high leverage, so as to achieve the goal of maximizing returns. Of course, because of the leverage effect, hedge funds will also face huge risks of excess losses when they are not operated properly.

2. The fund manager buys a put option at the same price of a stock at the same time. This is because when the stock price falls below the option-limited price, the fund holder will sell the stock in his hand at the option-limited price, thus hedging the risk of stock price decline.

That's all for what hedge funds are. I hope you can weigh the pros and cons and help your investment. Warm reminder, financial management is risky and investment needs to be cautious.