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hedge fund

The term hedge fund has become very broad, but it usually refers to funds that try to make money no matter what the overall markets do. They do this, usually, by employing strategies that can bet on various different types of things (like stocks, bonds, currencies and interest rates) and do so by setting themselves up to profit when such things go up or down in value. This contrasts with, for example, a traditional fund that can only buy stocks (and can’t set themselves to profit when stocks go down, e.g. by “going short”). Such a fund, typically, is much more exposed to broad movement of the markets (called “beta”). Hedge funds should be primarily exposed to “alpha,” which means that they “neutral” to the overall market.

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