Investment risk has become an obstacle for more and more investors who are hesitant to invest in the market, so today's fund class will introduce you to a type of fund that is designed to hedge risk. Hedge funds, known in English as Hedge Funds, meaning "risk-hedged funds", originated in the United States in the early 1950s. The purpose of the operation is to use futures, options and other financial derivatives, as well as different stocks associated with the actual purchase and sale of short, risk-hedging operation techniques, to a certain extent, to avoid and mitigate investment risks.
The basic hedging operation is that the fund manager purchases a stock and at the same time purchases a put option on that stock at a certain price and time frame. The usefulness of a put option is that when the price of the stock falls below the price limit of the option, the holder of the seller's option can sell the stock at the price limit of the option, thereby hedging the risk of a fall in the price of the stock.
In another type of hedging operation, the fund manager first selects a bullish sector and buys several high-quality stocks in that sector, while selling several poor-quality stocks in that sector at a certain rate. The result of such a combination is that if the sector is expected to perform well, the quality stocks will rise more than other stocks in the same sector and the expected annualized gain from buying quality stocks will be greater than the loss from short selling the poor quality stocks; if the expectation is wrong and stocks in this sector fall instead of rise, then the stocks of the poorer companies will fall more than the quality stocks and the profit from short selling will be higher than the loss caused by the fall in buying the quality stocks.
After decades of evolution, hedge funds have lost their initial connotation of risk hedging and hedge funds have become synonymous with a new investment model. It is an investment model based on investment theories and sophisticated financial market manipulation techniques, making full use of the leverage of various financial derivative products to take high risks and pursue high expected annualized returns.
Golden words of finance
There are five main purposes for managing your money: to protect against accidents, to fund your children's education, to provide for your old age, to increase the security of your capital and to maximize the value of your assets.
Investment is the investment of money to make money; financial management includes investment for our life and future.
Money management should include both keeping and creating. But guarding is not the Grammy type of guarding, which is essentially just a kind of hoarding. True guarding is the basis and prerequisite for creating, and is an active preparation for creating.
