What is a hedge fund?
A hedge fund serves a similar purpose to other funds in that it pools money from various investors with the key goal of making a profit, however, a hedge fund separates itself from others by the type of investors it typically draws funds from – professional and institutional.
The goal of a fund manager in charge of a hedge fund is to avoid risk while providing a return on investment, regardless of how external events are affecting market prices. The term ‘hedge’ used to describe this type of fund, gets its name from the financial term that refers to limiting exposure to risk.
In this sense, a hedge fund operates much in the same way as a garden hedge. If you imagine a traditional iron or wooden fence as a mutual fund or other types of investment. A garden hedge (hedge fund) offers an alternative way of establishing the borders of your house (investing in the market) with the same level of security.