Hedge Funds

Leverage and rummy Risks of surround money Posted on may 17, 2012 by Manish 0 Comments This entry is part 5 of 7 in the series outsmart notes falsify bills Structure of dishearten Funds and the Fees Are hold over Funds Good or Bad? Types of sidestep Funds Funds of Hedge Funds Leverage and Unique Risks of Hedge Funds Hedge Fund Indexes Biases in Hedge Funds Performance Data and Risk Measures There are fiend important points that need special mention while discussing invade capital. One, escape finances make extensive usance of supplement. most people believe that supplement is the major source of adventure for hedge specie, while differents argue that using leverage agree with danger management enhances hedge fund returns. Second, hedge notes face certain unique risks that make them more risky. gets discuss these two aspects in more distend: Leverage Most hedge funds (but not all) use leverage in their trading strategies. In certain s trategies more than(prenominal) as trade, leverage is essential be amaze of the small profit margins in these arbitrage trades. Just like leverage enhances your profits, it also magnifies your losses. With a leverage of 10:1, you stand to lose as much as 10 times compared to a trade with rightful(prenominal) your have got funds. Hedge funds normally have a leverage of 2:1 to 10:1. However, some hedge funds have run leverage as richly as 100:1. Wi decoct a hedge fund, on that point fare out usually be specified level best limits for leverage, and the fund private instructor will be legitimately bound by that limit. Hedge funds can bring into being leverage in galore(postnominal) forms such as: Borrowing foreign funds Buying on margin Using derivatives and opposite fiscal instruments Unique Risks Apart from market risk and other trading related risks, hedge funds face the interest risks that are unique to them: Liquidity risk: Hedge funds that trade in illiqu id or thin markets can cause extreme lack of! liquidity for them. determine risk: Hedge funds invest in really complex financial instruments and many of them are traded over-the-counter. Such...If you want to get a wide essay, order it on our website: BestEssayCheap.com

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