Articles on Investment Matters:

What Is A Hedge Fund?

You’ll often see the title ‘hedge fund manager’ in the bios of some of Wall Street’s famous investment gurus. But what exactly is a hedge fund? How is different than any other fund? And how do you get in on the action?

Hedge funds are private investment partnerships that are usually offered to limited number of investors and require a significant initial minimum investment. Hedge funds are normally open to institutional or otherwise accredited investors. Those investors are also required to keep their money in the fund for a minimum period, usually one year.

Basically, hedge funds are mutual funds for the super-rich. They resemble mutual funds in the way investments are pooled and professionally managed, but they are significantly different in the way fund can cooperate.

Hedge funds are lightly regulated private funds that are usually characterized by unconventional investment strategies. These funds are generally more aggressively managed and use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns. Regular investment funds are usually limited to ‘going long” and buying bonds, equities or money market instruments. Hedge funds also have the ability to "short" those instruments they believe will fall in price. Hedge funds are thus able to create more complex investment structures which can profit in times of market volatility, or even in a falling market.

In general, hedge funds are lightly regulated because it is believed they cater to sophisticated investors who need less protection. In the US, the majority of investors in the fund must be accredited. An accredited investor must earn a set minimum income annually and have a net worth of more than $1 million. Investment companies registered with the US Securities and Exchange Commission (SEC) are subject to strict limitations on the short-selling and use of leverage that are essential to many hedge fund strategies. Although hedge funds fall within the definition of an “investment company,” hedge funds often elect to operate with exemptions from the registration requirements by selling only to “qualified purchasers” or “accredited investors.” Hedge funds are also only sold via private placement and cannot be offered or advertised to the general public. So the funds trade a smaller pool of investors for fewer government restrictions.

While hedging is the practice of attempting to reduce risk, the goal of most hedge funds is to maximize return on investment. The first hedge funds that appeared in the 1950s tried to hedge against the downside risk of a bear market with their ability to short the market. Today, hedge funds use dozens of different strategies, including speculative investments. In fact, in many cases these funds can carry more risk than the overall market.

The hedge fund manager is the general partner or manager and the investors are the limited partners or members respectively. The manager generally makes all the investment decisions based on the strategy it outlined in the offering documents.

In return for managing the investors' funds, the manager will receive a management fee and a performance or incentive fee. Usually this management fee is computed as a percentage of assets under management, and the incentive fee is computed as a percentage of the fund's profits. In some cases the manager does not receive incentive fees unless the value of the fund exceeds a “high water mark.”

Other funds charge no fees until the funds pass specific performance goals. Typical fees for hedge funds are 20 percent of profits plus two percent of assets under management. Famous and successful managers often demand higher fees.

Today, some $1.2 trillion are tied up in some 9,000 hedge funds This is up 19 percent from 2005 and up 300 percent from 2001. At the end of 2004, 55 percent of the number of hedge funds, managing nearly two-thirds of total hedge fund assets, were registered offshore. The most popular offshore location was the Cayman Islands followed by British Virgin Islands and Bermuda. In the US, most funds are located in New York City, Stamford, Connecticut and Greenwich, Connecticut. London is Europe’s leading centre for the management of hedge funds.

Investment companies registered with the U.S. Securities and Exchange Commission (SEC) are subject to strict limitations on the short-selling and use of leverage that are essential to many hedge fund strategies. Although hedge funds fall within the statutory definition of an “investment company,” hedge funds often elect to operate with exemptions from the registration requirements by selling only to "qualified purchasers” or “accredited investors” Hedge funds are also only sold via private placement and cannot be offered or advertised to the general public.

Unlike mutual funds, hedge funds do not have to disclose their activities to third parties. Investors in hedge funds however are entitled to a higher level of disclosure on risks assumed and positions taken, and the investor often has direct access to the fund manager. A byproduct of this privacy is that there are no official hedge fund statistics.

Institutional Investor and Trader Monthly magazine annually ranks top-earning hedge fund managers.

Hedge funds are often targets of criticism. Their secrecy and lack of regulation have led to all kinds of allegations of dodgy dealings. The size of the assets held in these funds has also led to allegations that these funds have adversely affected bond markets on different occasions. US regulators have tried to impose restrictions on these funds but there attempts have been thwarted by the courts and the complexities of the funds and their offshore locations have created a regulatory nightmare for the SEC.

Some writers have concluded that hedge funds have evolved into little more than exclusive, high-fee mutual funds. Warren Buffett has little time for them either pointing out that mangers are rewarded for high variability, rather than high long-term returns.

Jay Northco
12 Feb 2007

Jay Northco is the editor of http://www.Cramerwatch.org a website that pits Wall Street Guru and host of Mad Money, Jim Cramer against a stock-picking monkey.

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Discover The Day Trader's Trading Strategies

One investment opportunity that is much misunderstood is what is called day trading. It can be option day trading, or day trading for regular stock issues rather than options. Either way the name comes from the fact that the transactions take place usually within the time frame of one day. As a matter of fact, many of the transactions take place in a matter of minutes.

It was the introduction of ECN's, Electrical Communications Networks, and their acceptance by the SEC, The United States Security and Exchange Commission, that opened the door to day trading as it is practiced today. In the past, it was the way the Stock Exchange operated that restricted day trading, as a certain amount of time was required to process transactions on the floor of the Stock Exchange.

Day trading is a wide and diverse investment opportunity, and its reception by the more traditionalist in the financial world has been somewhat mixed. Often viewed as more gamblers than investors, day traders have been reviled by some. On the other hand, some are giving day traders credit for helping to stabilize the market.

One thing is certain. Day trading carries a great deal of risk. So much so, that brokers are required to issue risk warnings to potential investors before allowing them to engage in day training. Individual investors are generally required to maintain a $25,000 minimum balance in their accounts.

Day Traders use several methods to make investment decisions. Trend following is one of them. Trend following is based on the assumption that stocks that are rising will continue to rise, and stocks that are falling will continue to fall. The day trader makes his buy early in the day, and sells at the end of the day, taking the day's rise as profit.

Another method used by day traders is called Range Trading. The idea here is that stocks have certain points that when reached cause the stock price to drop. Traders have knowledge of this range level, and use it to guide purchase or sale decisions.

Some Traders use a method known as "Playing the News." This method is simply keeping up with news that might impact the price of a stock. There is usually a delay in between the announcement of financial news, and the reaction of individual stocks to the news. The news can be good and cause stocks to rise, or bad, and cause them to fall, but the day trader acts quicker than the market.

Another method is called shorting. In this type of trading, stocks are borrowed from a broker, and sold. The trader is expecting the stocks to fall during the day, and at the end of the day, he buys them back at the lower price, repays the broker, and pockets the profit.

All of these various trading strategies depend on the ability to make trades in volume, and to make them quickly. This was not possible in the days before the internet became so wide spread, and the ECNs were established. Today, online option trading allows transactions to be made with the stroke of a keyboard, and this has fueled the rise of day trading.

Casey Yew
15 Feb 2007

Among the Many Investment Opportunities that Exist, Option Trading Stands as Both One of the Most Exciting and Risky as well as One that Offers Some of the Best Chances for a Substantial Return. Learn Options Trading Strategies, Basics and Pricing here at http://www.option-trading-fortune.com

FOREX - Is It An Investment or Gambling?

There are hundreds and thousands of work at home opportunities out there in this internet world. Are they all real? Experts say lots of them are scam. FOREX and Affiliate programs are the widely accepted get rich quickly opportunity. Affiliate program might need more hand holding or advice from expert to establish your position. Forex may not require any hand holding from experts to being making money or losing money. All you need is some emotion control and tips to buy or sell currencies. This article will explain some tips and strategies around how you can become good in Forex trading.

There are hundreds of firms available to begin Forex trading with very minimal investment. Most of them have robust platform and help document to support your trades online. So, you don't need to worry much about picking a Forex service provider. No one should be charging any additional amount to place the trade like they do with stock trading.

Some experts call Forex as Gambling. This is true in most cases. The only way in Forex is up or down. When the market is on its way up, then the market is on its way up. When the market is going down, then the market is going down. There are many systems analyze the past trend to predict the future trend. But no one can accurately predict. You will not be able to blame anyone if the predictions go wrong. It is just the market is moving. Don't get carried away with predictions.

It is normal for any human being to kind upset in their day to day life. This is the real strength for the Forex. When you are upset, you don't make wisest decisions. It is real easy to get upset when you are day trading with Forex. Don't let your emotions play major role in the trading and most likely you will face the pain when the day is over. How can you over come this emotion when you play the day trader role?

Make sure you don't try to be smart. If you look at the profit makers in the day trading, they don't analyze or research historical data all day. Not spending lot of time with the trend analyze surely will keep you out of your emotions a lot.

Wait for the market news/announcements and this is the best time to trade. You will see big up/down in the market based on the news/announcement. If you picked the right direction, then you make money. You should control your emotion when you picked the wrong direction. Liquidating your position is not an answer if you picked the wrong direction. Look at the overall currency strength. If overall strength and the direction you picked are matching, you can wait for sometime for the market to bounce back. This normally helps to reduce your lose and sometime it may gain you a little profit.

Don't trade during the off-peak hours. There will not be much market movements during this time. Your emotions may not allow you to stay in a static market for a long time. You may tend to quit the position and try with another currency pair. This will make you to lose money even in the off-peak hours.

Mike Malli
02 Mar 2007

Mike Malli is one of the key contributors to www.topexpertpicks.com which is dedicated in helping you find a way in choosing your online Forex opportunities. www.topexpertpicks.com provides you with filtered and fully reviewed Forex opportunities.