Hedge Fund is the choice of many professional investors, however, in the UK market, this is still a new concept. But What’s a Hedge Fund? Can this investment method bring expected profits or are there potential risks? The article below from Forex Trading will help you better understand the Hedge Fund.
What’s a Hedge Fund?
The first thing to do is to know What’s a Hedge Fund? Hedge Fund, also known as hedge fund or symmetric fund. A concept for investments managed by professionals with capital from the individual investor. The goal of these investments is to protect the portfolio from market volatility.
Investors usually receive profits through the investment of the fund. With portfolios built around different investment strategies and styles. Managers can make long-term or speculative investments depending on the investment plan. This is to ensure profit stability no matter how volatile the market is.
What is Forex Trading Scalping?
Forex Trading Scalping is a short-term same-day trading method. It is used by forex traders to buy and sell currency pairs with the goal of making quick profits. Scalping traders often make many small trades in a day. Take advantage of small price fluctuations that occur in short periods of time. Although each trade only leads to small profits, earnings can be increased by increasing the size of the trading position.
In addition, you should also learn about what is support and resistance to help you have a better overview of Forex. Support and resistance refer to price levels in the Forex market that investors expect will be turning points. Or it could be where the trend might slow down before continuing. These are price zones that are likely to repeat similar behavior in the future.
Learn about RSI Trading
The relative strength index (RSI) is a technical analysis tool in the financial sector. It is used to measure the volatility of stock prices or other financial assets and helps investors evaluate whether the market is overbought or oversold. Based on RSI Trading, they can make informed buying and selling decisions.
Besides, in the Forex market, knowing how to calculate Ebitda is also necessary. There are 3 ways to calculate EBITDA that investors and managers can use:
- EBITDA* = EBITDA – “Interest on deposits and loans” – Other profits.
- EBITDA* = Profit after tax + Tax + “Loan interest – Deposit and loan interest” + Depreciation – Other profits.
- EBITDA* = Profit before tax + “Loan interest – Deposit and loan interest” + Depreciation – Other profits.
See more: Learn Dow theory for trading beginners
What are the characteristics of RSI Trading?
RSI is an analytical tool used to predict price trends in the near future.
- When RSI surpasses the overbought level (RSI > 70) and continues to increase, it is likely that the price will reverse downward.
- When the RSI falls below the oversold level (RSI < 30) and continues to decrease, it is possible that the price will reverse and increase again.
Features of What’s a Hedge Fund?
So after knowing What’s a Hedge Fund, let’s learn more about its characteristics. Compared to other types of financial funds, Hedge Fund has the following notable characteristics:
- Requires strict participation conditions, only professional investors with large capital and minimum assets are accepted.
- The hedge fund’s investment portfolio is quite diverse. Including real estate, currencies, stocks, financial derivatives and alternative assets.
- It also often uses financial leverage to maximize profits. But it also comes with a higher level of risk than other types of funds.
- A hedge fund’s fee structure usually includes an asset management fee (2%) and an investment performance fee (20%).
Meanings of RSI Trading
A bullish divergence occurs when RSI trades up but the price falls, or when RSI falls but the price rises (meaning RSI and price have opposite directions). This is a sign that there may be a reversal in the price trend in the future.
In the example below, the price chart (upper part) shows that the price is decreasing. However, the RSI trading chart (blue) is increasing. This suggests that the stock may continue to rise in the near term. In fact, after that, we saw the stock rise sharply.
A bearish divergence occurs when RSI falls but the price rises. This shows that although the price is increasing, the main market trend is weakening, and there may be a price reversal in the near future.
Types of Hedge Fund trading strategies
So what are the types of trading strategies of What’s a Hedge Fund? Before exploring further, here are some popular hedge fund investment strategies:
- Long/Short Equity (L/S) Strategy
- Market-Neutral Strategy, including Equity Market-Neutral (EMN)
- Short Selling Strategy (Short Bias Funds)
- Event-Driven Strategy (Special Situations)
- Relative Value Strategy (Relative Value Funds)
- Chiến lược Activist Investing (Shareholder Activism Funds)
- Macro Global Strategy
- Quỹ Quantitative (Systematic Trading)
- Distressed Debt Investing Strategy
- Quỹ Multi-Strategy (Multi-Strat)
- Credit Funds Strategy (Fixed Income)
Opportunities and challenges when participating in What’s a Hedge Fund?
When participating in a hedge fund, are there opportunities and challenges? Opportunities and challenges of What’s a Hedge Fund?
Opportunities when joining What’s a Hedge Fund?
Hedge Funds have the potential to deliver higher returns when compared to traditional investment funds. Thanks to the application of complex and diverse investment strategies, these funds are able to optimize returns in a variety of market conditions. Participating in a Hedge Fund allows investors to participate in a variety of financial products and markets. From stocks, bonds, and commodities to foreign currencies and other complex financial instruments, help diversify your investment portfolio.
Hedge funds are often flexible and creative in using investment products and strategies, creating opportunities for investors to participate in diverse investment scenarios. To participate in a Hedge Fund, extensive knowledge of the financial markets is essential, so investors should have the opportunity to apply and develop their expertise.
Challenges when joining What’s a Hedge Fund?
With the use of financial leverage and complex investment strategies, the financial risk in hedge funds is often higher than in traditional investment funds. This is because hedge funds typically invest in a variety of financial products and markets. This means that investors have to face risks from unpredictable fluctuations in many commodities and markets.
Additionally, some hedge funds often face legal risks related to regulatory compliance. And operating conditions in different markets. Difficulty in selling investment strategies and financial products can also create liquidity risks. In particular, because there is no requirement to publicly disclose investment portfolios like traditional investment funds, investors may not know exactly what types of assets the fund is investing in.
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Reputable funds in the UK What’s a Hedge Fund?
Below is a list of hedge funds with large charter capital in the UK:
- Dai Ichi Life VN Stock Investment Fund: 50 billion USD
- UK Tiger Securities Investment Fund: 230 billion USD
- Japan Asia Investment Fund: 200 billion USD
- SSI Investment Fund: 390 billion USD
- UK Investment Fund: USD 1,349 billion
Conclude
The above article has explained to you about What’s a Hedge Fund. Hedge Fund is a concept introduced in the above article, helping readers better understand it. Hopefully, this information has helped investors grasp the opportunities and challenges that Hedge Fund brings. Please continue to follow Forex Trading to update more useful knowledge.
FAQs
How do Hedge Funds compare to other investments?
Hedge funds are investment funds that are actively managed by professional managers. With the goal of exceeding conventional market returns. They accept higher risks and may invest in derivatives and options.
What tools do investors use to compare performance?
Investors often compare annual profit rates to evaluate and choose appropriate investment funds. One popular way to do this is to use analytical software packages like Morningstar, which help identify funds that use similar strategies.
Why should you invest in Hedge Fund?
A wealthy person may be interested in creating a hedge fund. It is attracted by the manager’s reputation and performance, the specific assets the fund invests in, or the unique strategy the fund adopts.
