What Is A Hedge Fund?

The word hedge fund is defined as a term which is commonly used in the securities market. It is used to describe those funds which use the techniques of hedging. For instance, an option fund is one which may use futures contracts on the indices in the stock markets and in short sales with stock options to limit risks.

Hedge funds are one of the many alternatives which a potential investor can opt for when he or she wants to invest his or her money in the securities market. Most of these alternatives pursue a total return strategy. They usually charge a high performance fee in addition to the management charges, which have to be paid annually, and the initial fees.

Some funds may pursue conservative strategies or strategies which are neutral to the market. On the other hand, there are some funds which take highly leveraged bets on the directions of currency or the movements of stock.