Hedge fund is a kind of fund with hedging as its operation mode. By hedging, the risk can be minimized, and it can also be used to make money. So what is a hedge fund and how to actively hedge it? The following is how the hedge funds compiled by Bian Xiao hedge, for reference only, hoping to help everyone.
How do hedge funds hedge?
Baidu Encyclopedia defines hedge funds as: refers to funds that combine financial derivatives such as financial futures and financial options with financial instruments, and adopt hedging trading methods for profit. At first glance, it's complicated. Here, Bian Xiao uses an example to illustrate how hedge funds hedge.
Xiao Ming is a farmer and has an industrious cow, but Xiao Ming thinks that the money earned by cultivated land is too little, so Xiao Ming studies the market of cattle, and Xiao Ming thinks that the price of cattle will drop sharply after one month. So Xiaoming now pulls his cattle to the market to sell. I plan to buy it back after the price drops sharply in a month (because I have to farm in the future). A round trip can make a lot of money. But there is no such thing as a banquet that never ends, and investment is risky. No one knows whether the price of cattle will drop sharply or rise sharply in a month. If the price rises after one month, then Xiao Ming will lose money by buying the cow back (or how to farm for dinner in the future). Xiaoming felt the risk, so he thought of a way to avoid it. Xiao Ming's operation is this: go to the market and sell the cattle to the cattle dealer at once, but discuss with the cattle dealer and buy them back at a lower price one month later. Xiao Ming may say, can a cattle dealer be so stupid? Cattle dealers are not stupid, because the prices sold to cattle dealers are all market prices, and cattle dealers don't lose money, but cattle dealers may also expect the price of cattle to fall in a month like Xiao Ming, but the difference between them is that cattle dealers are more pessimistic about the market of cattle. So the deal is done. Now, Xiao Ming sells it at the market price, and then buys it back at a fixed lower price, and gets a fixed price difference, making a steady profit.
What does hedge fund mean?
Hedging is actually a concept in finance, which means that one investment deliberately reduces the risk of another investment, in order to reduce the operational risk and still make a profit from it. At the same time, hedge funds are funds that make profits through hedging transactions. Many times, hedge funds not only use hedging methods, but also use transposition and hedging in exchange for high profits. Hedge fund, as a kind of financial fund aiming at profit and combining financial futures, options and other tools, is a kind of hedge fund, also known as hedge fund or hedge fund.
Generally speaking, hedge funds often belong to private investment companies and enjoy tax incentives in the form of limited cooperation or offshore enterprises. Different types of hedge funds have different investment strategies and risks. Compared with traditional funds, hedge funds are more risky and may lose all their money if they are not careful.
At present, hedge funds have four trading modes, namely, stock index futures hedging, commodity futures hedging, statistical hedging and option hedging. Stock index futures hedging and commodity futures hedging are the most commonly used trading methods. Among them, the symmetry of stock index futures refers to the behavior of hedging by making use of the unreasonable price difference in the stock index futures market, including term hedging, inter-period hedging, cross-market hedging and boasting hedging. Commodity futures hedging is also similar to stock index futures hedging, which means buying and selling a futures contract, selling or buying another related contract, and closing both contracts at the same time within a certain period of time.
As a fund product with high returns and even huge profits, hedge funds are also risky. One improper operation will wipe out the whole army. Therefore, before investing, we must do a comprehensive investigation and invest carefully.
What's the difference between hedge funds and Public Offering of Fund?
A notable feature of private equity funds is that fund sponsors and managers must invest their own funds into fund management companies, and the success of fund operation is closely related to their own interests. In addition, private equity funds raise funds through non-public means. In terms of fundraising targets, private equity funds only target a few specific investors, and the circle is small but not low. Therefore, the investment goal of private equity funds is very strong, which is more like an investment service product tailored for middle-class investors. Different from the strict information disclosure requirements in Public Offering of Fund, the requirements of private equity funds in this respect are much lower, and the government supervision is relatively loose, so the investment of private equity funds is more hidden, the operation is more flexible, and the probability of obtaining high expected annualized income is greater.
Generally speaking, hedge funds refer to financial derivatives such as financial futures and financial options, which are combined with financial instruments to make profits. Private equity fund is a very broad concept, which refers to investing in any kind of equity assets that cannot be traded freely in the stock market.