Hedge funds are unregistered investment companies where investors pool their money and traders buy and sell securities to generate profit. Junior traders negotiate prices and may work remotely. Traders often have finance degrees and seek high-risk investments. Hedge funds are not required to disclose their investment strategy.
Hedge funds are investment companies that do not need to register with national securities regulators. Investors pool their money in these funds and hedge fund traders are investment professionals who buy and sell securities on behalf of the fund with the stated intent of generating a profit for the fund and its investors. Most hedge fund traders start their careers working as brokers for mutual funds or other registered investment firms. If so, these traders are subject to more government regulation than the hedge funds they work for.
Junior hedge fund traders execute orders from fund managers. Traders need to try to negotiate the lowest possible price for the sale of securities and agree to the highest possible offer for the sale of securities. Some traders have seats on major stock exchanges, which means they trade in the market and trade in real time. Other traders operate from remote locations, but hedge funds often have secure, high-speed connections to world markets, so traders can see the latest security prices in a split second after traders who are on exchanges.
Many hedge fund traders have degrees in finance, accounting or a related field, and a background in finance helps traders develop strategies for generating returns by investing in complex securities. Other traders lack a college degree and instead start their careers working as salespeople at banks or investment firms. These traders earn commissions based on the performance of the fund they trade in rather than salaries. A hedge fund normally splits a certain percentage of its net income among traders, so in theory there are no limits on traders. Successful traders are often recruited by other companies to work as fund managers, and some traders end up establishing their own hedge funds.
Unlike other investment companies such as mutual funds, a hedge fund is not required to disclose its investment strategy to its shareholders. Hedge fund traders, consequently, generally have a great deal of flexibility to invest fund money in any type of investment that appears to produce high returns. In pursuit of maximum profit, hedge fund traders look for high-risk securities that offer potential rewards, such as unwanted bonds or cheap stocks in companies close to bankruptcy. Traders also buy more exotic investments such as credit swaps, which are like unregulated insurance contracts that finance companies issue to each other.
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