Hedge Fund 101 - Make Money with Hedge Funds

Investors are always looking for the best investments that will yield the most profit. Any investor who can afford the extra cost should consider investing in Hedge Funds. Hedge Funds were started in 1949 by Alfred Winslow Jones, who pioneered non-traditional investment strategies. Jones innovated this new investment strategy by selling short stocks, while buying other stocks (long stocks). Hedge Funds are very similar to Mutual Funds, except that there are fewer regulations on Hedge Funds. As a result, Hedge Funds usually require a much larger investment.

What Are Hedge Funds?

Hedge Funds can help investors make more money with higher-risk investments. Other techniques used in Hedge Funds include "leverage," which is borrowed money to trade in addition to the capital provided one's investors. The usage of Hedge Funds also requires an incentive fee. An incentive fee is a fee based on a portion of the client's profits as opposed to a fixed percentage of assets. This fee is then invested and ideally will gain the investor more money.

Generally, companies are the owners of Hedge Funds because most people do not have enough money to meet the minimum investment required to have a Hedge Fund. In 2004, Hedge Fund investments passed the $1 trillion dollar mark. In mid-2004 about 39 companies shared the total Hedge Fund values of 1.1 trillion dollars.

Common Techniques for Investing

There are also other techniques for investing with Hedge Funds. One way is to invest in a company just before a major merger. If one gains knowledge of a merger, and buys large amounts of share in a company that is about to merge, the shares go up greatly once the merger occurs. This is, unfortunately, a very high-risk investment strategy because some mergers may not occur.

Other techniques include selling short, which is where one invests in seemingly undervalued securities, trading commodity and FX contracts, and taking advantage of the separation between the current market price and the highest purchase price in events such as mergers.

Why are Hedge Funds Beneficial?

Hedge Funds are also beneficial because of their high level of security. Hedge Funds are private, between individuals, and do not have to be made known to the government or other companies. Currently, Hedge Funds do not need to be registered with the SEC. Hedge Funds are also based in places with less regulations (I.E. The Cayman Islands, The Virgin Islands, etc). However, one drawback of Hedge Fund security is the fact that it looks suspicious to have secretive investments. For this reason, many companies and investors are criticized for being involved with Hedge Funds.

Conclusion

Hedge Funds are a very risky investment, with a large payoff. In order to invest in Hedge Funds, one must be prepared to make a very large investment. Hedge Funds are similar to Mutual Funds, except there are less regulations on Hedge Funds. Less regulations lead many people to be suspicious of investors who invest in Hedge Funds. However, if one is willing to take the risk, Hedge Funds can certainly pay off!

Scott Hillsworth enjoys writing about financial topics. Learn more at Hedge Funds Blog, a weblog with daily hedge funds research and news.

---

Why the Rich Keep Getting Richer

Rich people: fortunate, lucky, selfish, and arrogant? Or highly educated,... Read More

Preparing to Invest: How to get started

Investments can be a source of great potential earnings. The... Read More

Your Worst Enemy To Successful Investing - The Media

How do you make your investment decisions and where do... Read More

Investing 101: Risk Terminology - BETA

About thirty years ago, statisticians armed with all of their... Read More

It?s Never too Early to Start Investing!

Remember the old saying, "never too late to start"? Well,... Read More

The Dreaded Direct Question

(Please have a glass of water within reach before reading... Read More

The Power of Small Numbers: Trading Success is Based on Consistency, Not Home Runs

Online trading is so seductive - just sit, click, and... Read More

Discipline in Trading and Investing

The one thing I can think of that most affects... Read More

Focus Your Investments on the Long Term

"All human power is a compound of time and patience!"... Read More

Property Investment Just Got Exciting

There is an area in Brazil that has lower crime... Read More

Powerful Hidden Techniques Mystery Formula - The Covered Call Option Trading Buy-Write Strategy

For better or worse, most option trading investors purchase stocks... Read More

The Conflict of Interest Game

Disgruntled investors are going after Wall Street once again, this... Read More

Trading Commodity Futures Using Support and Resistance - Paper Trading

Setting Up a Paper Trading AccountQuestion: I cannot trade with... Read More

Scots Beat Yanks in China Bank Deal

With visions of an ATM in every neighborhood in China,... Read More

Issuing Warrants to Investors

When raising capital for a business venture, warrants are a... Read More

Angels Investors and Their Networks

What is an Angel Investor? An Angel is usually a... Read More

Value Investing

By definition, value investing is the process of selecting stocks... Read More

5 Things To Know About The Stock Market

50% Of U.S. Households Invest In The Stock Market Individuals... Read More

Investing In Sons Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 to start... Read More

June 2005: Weather Forecasts for Weather Traders

If Johannes Kepler, the renowned 17th century astronomer and discoverer... Read More

Keeping It Interesting

Some lines from a movie never leave your mind; I... Read More

Mutual Fund Returns May Not Be As They Seem!

Arthur Levitt, during his tenure at the SEC, experienced many... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More

Out-Of-State Investors Check List of Questions

The following lists of questions are suggested questions to ask... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

Your Portfolio and ?Old Ironsides?

The USS Constitution first ventured into the waters in 1798.... Read More

Part II of Day Traders and Swing Traders and Options? Maybe!

Before every protective put trade it is possible to calculate... Read More

A Secret Revealed: Why Most (Day) Traders Fail

The following perspective on (day) trading comes from my many... Read More

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do... Read More

Do You Need A Financial Planner?

No matter how much money you make, it pays to... Read More

Justify Social Security ... Dont Save for Retirement

It is a common question when investors review their retirement... Read More

Why You Need To Buy and Sell Gold Coins (Part 1)

The Value of Gold in a Era of Paper Assets,... Read More

Makin The Sauce

Let's face it, you're on a roll. After getting down... Read More