Definition of Hedge fund: A hedge fund is a fund, which is aggressively managed portfolio of investors whose net worth is over one million dollars. If any investor wants to join in this hedge fund, then they must sign a letter of agreement in which they should mention that they are well-known investors and they are ready to face the risk.

The managers of the hedge funds use advanced strategies to increase the returns on investments to the fund. The strategies are works highly in long and short derivatives of both domestic and international markets. These derivatives contain options such as Calls and Puts, futures or contracts and swaps, which protects the bulk of the portfolio. To design protective “collars”, most of the hedge funds use the sophisticated mathematical models.

The general rule of hedge funds is that the investor should leave his investment at least one year in the fund. If he wants to withdraw, then he should inform to the hedge fund manager one or two months before.

Regulation: This hedge fund is not dealing with the regular public, but they deal with sophisticated accredited investors who are not regulated. So, the hedge funds manager has a great flexibility to choose their instrument. Even though hedge funds look like mutual funds, but hedge funds are not considered mutual funds.

Return on investment: These sophisticated investors are expecting more returns on their investments and this hedge fund will fulfill that need. Once the hedge funds showing steady track, then the money flow will start.

Cash Flow as a measure of profitability, future returns and liquidity: No two hedge funds will work alike, they will work in their way and in general it shows the personality of their manager, but it mostly shows the personality of the general partner.

In these general partners, some personalities are like IPOs, arbitrage, foreign currencies, stock splits, buyouts.

Arbitrage and Multiple Brokers: To get the maximum returns on investment, hedge fund manager hire several brokers who will provide the maximum returns on the investment.