Hedge Fund – Know the Risks and How to Gain Profitably From It

Due to their private nature, hedge funds may seem confusing to even to a savvy investor. Hedging literally means reducing the risk, so, a hedge fund’s prime objective is to reduce the risks for the investors. Hedge fund manager has to get rid of some risks, while strategically taking on others that promise good returns. This way, they are able to provide better return to the investors as compared to the traditional mutual funds. The key point to remember is that risk is a function of return; it remains, no matter the hedge fund strategy. Higher the risk, higher the returns.

A hedge fund utilizes multiple investment strategies for an array of assets to obtain better profits for a certain level of risk. Some hedge funds are designed to return profits consistently, no matter how the markets fluctuate.

Hedge funds employ aggressive investment strategies to return higher crypto profits to the investors. The key broad strategies of hedge funding include:

 Leverage
 Derivative
 Long and Short
 Global Macro

Deciding about the strategies

A fund manager will employ a particular strategy based on the market conditions, anticipated risks and the profits. For example, the investors looking for enhanced returns go for leverage strategy. They borrow and trade money on top of the capital gained by them. However, the hedge fund has to calculate increased profits against the potential huge losses. For this, it has to employ complex risk management tools to minimize the associated risks. Hedge funds using crypto currencies in Global Macro strategy attempt to take large positions in stocks, bonds and commodities. They do this by analyzing the investment opportunities in relation to what may affect the global events of the future. The strategy helps the fund garner largest return, all the while keeping the risks to minimum.

Risk factors

Hedge funds are often criticized for the high fee that one has to pay to participate in it. The investors are charged performance fee on top a management fee, which is usually 2% of the net worth of the fund, and is paid every month. Performance fee is usually 20%, no matter what the fund returns. The fee is structured to keep the fund managers motivated to gain maximum crypto profits from the investments in ICOs and other diversified portfolios. Moreover, when leverage rises, downsides in the return on investment are increased in the similar proportion. This may eventually have the hedge fund sell off its assets for cheap. High leverage has caused some hedge funds to go bankrupt.

Educate yourself to get better understanding

A good option would be to change the way you invest, as it will allow you to re-evaluate your investment decisions and come up with new strategies for better gains. Hedge funds are more exclusive compared to mutual funds, so try to educate you about their functioning. Choose a strategy based on your level of understating. You should also educate yourself about the fee structure and taxation applicable to your fund. More advanced investors use complex financial instruments, such as the derivatives to effectively and strategically hedge their position. One should have clear objectives in mind before investing in a hedge fund, and also do the necessary homework to avoid last minute disappointments.

Seeking the advice of experts will help

Even if you have decided to jump and invest in hedge funds, you may have trouble finding the right one for you. And even if you decide to go for a particular hedge fund, you will need to effectively analyze the data to know how much you are making out of your investment. This may not be your cup of tea, so you can always look for the hedge fund specialists, such as those available with HedgeConnect.co. Since it’s their everyday business, they have the insights of the industries that we lack. They diversify the strategies and change them quite often to provide a buffer against market volatility to your crypto investments.

The intuitive interface of HedgeConnect will help you open a HedgeConnect wallet that you can use to store your crypto currencies and do trading with them. This safe and secure wallet ensures that you have confidential transactions and authorized access to your funds.

Learn more @ Hedgeconnect.co