I ve started learning about the market but I dont know what hedge funds are. Please explain
In: 17
I’ll actually explain like you’re 5.
To **hedge** a bet means to limit or reduce the amount of money you lose.
The best and simplest example of a hedge is a simple coin toss. If you wanted to bet $5 on heads, how would you **hedge** that bet? We do it all the time, we say “2 out of 3 wins.”
We know that it’s a risk to bet only on heads, so we hedge it by increasing the number of times we flip the coin.
That’s not how hedge funds work, but the concept of minimizing a loss or maximizing a reward is the same.
Hedge funds protect one type of investment by combining with another type of investment.
To be specific and technical, hedge funds use derivatives to offset losses or maximize gains on *other* investments, so if one doesn’t pan out you don’t fall flat on your ass. In theory.
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