Definition of 'Hedge Fund'
Investors in hedge funds usually need to have a net worth of $1 million and a minimum annual earning. They must also have a significant amount of investment knowledge. For this reason, hedge funds are often thought of as mutual funds for the very wealthy.
As the name implies, hedge funds usually seek to hedge the risks inherent in their investments using a variety of instruments. Notably short selling and derivatives. The term hedge fund has also come to be applied to funds that not only hedge but also to funds that using hedging techniques to increase their risk and exposure to the market.
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