A hedge fund is a partnership between a professional fund manager and investors (often referred to as limited partners).
While there are hundreds of strategies employed by hedge funds to generate returns for their investors, most can be grouped into four main categories
Hedge funds implementing a global macro strategy look at the big picture economic and political trends worldwide and attempt to capitalize on these large-scale ideas.
A directional strategy hedge fund uses market trends and directional market movements to identify equities or other securities.
An event-driven hedge fund strategy seeks to identify risks and opportunities in specific events and make trades that pay off if those risks or opportunities are realized.
A relative value strategy will attempt to take advantage of price discrepancies between securities, otherwise known as arbitrage. Investopedia defines arbitrage as “the simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset’s listed price.