The first feature is that financial derivatives are relatively new, such as financial futures and financial options, which can facilitate very large transactions with very small amounts. In theory, there is no price for buying futures, but there must be a certain margin. Options have an option pricing formula. According to this formula, the price of the option can be calculated. For example, the price of a stock is 50 yuan per share, and the option may be 5 yuan per share or 10 yuan. An option is the right to sell or buy after a period of time. In this way, relatively small funds can be used to facilitate larger transactions.
The second feature is that once the delivery date is reached, if the market price becomes unfavorable, you can not perform your obligations. For example, an option bought for 5 yuan should be sold at 60 yuan, but it has not risen to 60, but has fallen to 40. You can discard the option as 5 yuan. Because this arrangement makes the risk of trading relatively small, these hedge funds and option traders are more willing to take risks and adopt a risk attitude. Because the loss of risk is relatively small, but the gain may be great. There may be a third feature, of course, this feature is a bit too technical.
For example, the current price of a stock is 50 yuan per share, and its probability of falling to 30 yuan is much lower than that of falling to 49 yuan. The lower the probability, the lower the price of the call option. Therefore, the more you lower a price, the less money you can spend. This is a weapon of hedge funds. Hedge fund is a hedging transaction and a way to avoid risks. Theoretically, it is very speculative.
However, hedge funds have gradually formed a portfolio in their development, and the purpose of this portfolio is to make profits. When hedging, the portfolio automatically eliminated the risk.
For example, after one month, you buy mung bean futures at the price of 1 yuan, but the risk is that the price of mung beans may drop to 60 cents after one month. You can make another contract and sell it at 1 yuan after one month. In this way, no matter how the price falls, hedging will automatically eliminate the risk, but it will require certain formalities.
But hedge funds are not of this nature. Their purpose is not to avoid risks, but to make big money. There is a kind of portfolio that can make a lot of money, that is, through some operation, the market price is affected by it, and it is greatly affected, so that the portfolio can make a lot of money. This is one of the most important attributes of hedge funds. You can look at the example of Li Sen. Lisson is a person who unconsciously uses futures and options to manipulate prices. In How I Down Baring Bank, he mentioned several times that he expected to influence the market price by buying bigger orders and bigger transactions, so that the price would become favorable to him. Allison's behavior is unconscious, but he has realized that he can make a profit by influencing the price.
Gradually, people who do financial market analysis will find two possible characteristics. First, the stock market and the foreign exchange market are intrinsically linked in price. In this way, we can consider affecting the price of one market to affect the price of another market, and this certainty is very high. Hedge fund's strategy is mature because it realizes that there is an inherent, logical and even inevitable connection between two different and related financial markets, and it can use this to make money. Second, when a market is suppressed, it may collapse. For example, the Hang Seng Index, which suppressed the Hong Kong market, is now 10000. When it is suppressed to 8000 points, it may fall to 6000 points, which is caused by panic and is also a means for hedge funds to make money.