A Hedge Fund is formed with the words ‘hedge’ and ‘fund’; a hedge means a type of contract that reduces the individual’s exposure to risk. For instance, risk arose due to price fluctuations.
Likewise, a Fund is the amount of money collected or saved for a particular purpose. It can be money collected to invest in stocks.
So, a hedge fund is a pool of money saved or collected to make investments and ensure returns despite the market risk. Hedge funds charge higher fees to the investors, and despite the harsh market conditions, they promise to make money for them. If they don’t, investors will find another one who will make that promise come true.
In the 2008 financial crisis, many hedge fund managers lost their money, but some outliers also profited. How? By shorting; shorting is investing in such a way that an individual will earn the expected profit despite the downfall.
