Dictionary / How companies make money
What Is a Hedge Fund?
A hedge fund is a private investment fund for rich people and institutions. It can use many strategies that normal funds avoid, like short selling and borrowing.
How hedge funds work
The name comes from "hedging": protecting against losses by also betting the other way. Today hedge funds use all kinds of strategies: buying and shorting stocks, trading futures, options and currencies, often with borrowed money.
Hedge fund fees
The classic model was "2 and 20": 2% of your money each year plus 20% of any profit. Many funds now charge less, but they are still far more expensive than an index fund.
Hedge fund vs mutual fund
A mutual fund is open to everyone and follows strict rules. A hedge fund is only for wealthy investors, has fewer rules, and often locks up your money for a time.
Do hedge funds beat the market?
Some do, many do not, especially after fees. Their goal is often steadier returns rather than the highest returns.