Prajna Capital - An Investment Guide

This article explains how hedge funds use different strategies to mitigate risk Hedging means managing risk. A fund manager employs a particular hedging technique in order to mitigate a particular type of risk. For example, a market risk can be hedged against by selling a broad collection of securities short, in equal proportion to one's long exposure or by buying put options on an index. You can hedge against interest rate, inflation, currency etc. Tools for hedging include raising cash, selling short, buying or selling options, futures, commodity and currency futures etc. A hedge fund is a private investment partnership. Hedge funds tend to be skill based investment strategies that attempt to obtain returns based on a unique skill or strategy. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. It designs a strategy to reduce investment risks using call optio...