About Hedge Funds

The term "hedge fund" dates back to a fund founded by Alfred Winslow Jones in 1949. A.W. Jones was to sell some stocks short while buying others, thus hedging some of the market risk.

While most of today's hedge funds still trade stocks both long and short, some do not trade stocks at all, instead focusing on other financial instruments including commodity futures, options, and emerging market debt.

Strategies may be designed to be market-neutral (very low correlation to the overall market) or directional (a "bet" anticipating a specific market movement). Trading decisions may be purely systematic (based upon computer models) or discretionary (ultimately based on a person). A hedge fund may pursue several strategies at the same time, allocating its assets proportionately across different strategies.

Summarising, hedge funds differ from traditional investment funds in two significant ways:

Hedge funds have a single goal - to achieve gains in rising as well as declining markets.

Hedge fund managers are allowed to make use of all existing financial instruments to achieve gains.