Answer: Hedge funds hold positions based on pricing deviations between securities. Only the general market risk exposure is washed away. If the price changes are different from expected after the position is established, then there will be losses.

The leverage used by hedge funds amplifies the final income, which will make the result as expected and the income multiply. On the contrary, it will suffer huge losses. The word hedging originally refers to preventing risks, but it doesn't mean this in hedge funds, because the latter actually magnifies risks.