Ok so in plain speak what is a hedge fund

I don’t get what they are, I did some gardening back in the day but never got paid what these chaps are on
what makes them worth so much when my wife could save a kids life (she’s a nurse) and gets not enough for the honour?

Basically investment with access to lots of complicated financial instruments which pretty much knowone fully understands. Therefore anyone who does understand and manages to make lots of money for their clients is very rare so can comand a lot of money.
If you think its easy get into the industry and try and compete their wages down…. good luck

financial betting using money collected from investors in the fund

can get large enough to create the desired result due to psycology of other players in the financial markets

i think the original premise is to protect an investment. basically investing in other things to protect the original investment, but then it got complicated.

The term Hedge is the same reference as in hedge your bets but in reality it is just speculation on finacial markets but set up in a way so they avoid regulation and cut corners / costs.

They involve a small number of people who make enough money to pay themselves these kinds of wages.

The question to ask is where does the money come from – the answer is our money in our Banks and our pension monies – invested for us by the banks / trustees.

How do we stop it – we all go and live in the woods!

They use a combination of many different financial products, pricing models such black scholes and other methods to produce a situation where they can produce arbitrage such that there is very little or risk / loss.

Imagine there are two teams playing.
Odds team A win 2:1
If we risk £100 if Team A wins we get back out £100 stake and £200 winnings. If team B win we loose £100.

If we could find some way of mitigation that lost it would be ideal. Now lets suppose that though betting against a series of other teams, maybe a series of other sports and a bet with the old man at the bar that he will live to 80 years old we can create a situation where.

Odds team B win 1:1. So we bet £100 and we get back out £100 stake and £100 winnings.

Combing these two bets costs a total of £200.

Team A wins we get £100 back for the first bet + £200 winnings. We loose £100 on the second complicated bet. Net profit £100.

Team B win We loose £100 on first bet but get our £100 back on our second bet and £100 winnings. Net profit £0.

We have managed to engineer a siltation via creating a series of bets such that we can not loose.

Hedge funds try and create this type of situation by clever use of improved products and mathematical pricing.

I had it described to me as a special investment club for “worthy investors” that is largely self regulating and basically does all the stuff normal investment funds do but across more markets to spread the load. Short and long selling, derivatives all that stuff.

Actually what he said^^^^

One thing I do know is the people that do the statistical and acturial work in this field get paid a ton of money.

Hedging used to be a legitimate form of protection against price instability and availability issues. For example, an airline will buy a years worth of fuel today, at today’s price which they will be able to call off as they need it, if they think the price is going to go up. Gas companies who offer fixed price tarrifs also buy “futures” at a fixed price so they guarantee their profit on the deal.

But hedge funds can also trade in financial futures as well as commodity futures, and they can do all sorts of dodgy dealing when trading in commodities which they know will reduce in value.

cheers guys, much clearer now, basically clever mathematical types playing with big sums of other peoples money, probably end up with concrete shoes if they get it wrong!

One of the reasons behind the economic collapse was that these financial instruments became so complicated that no-one actually knew the true risks of their investments. A simple example was that if you take one sub-prime mortgage it’s very high risk. But take 100 of the same and it can be suggested that it’s much lower risk because what’s the chance they’ll all default at once? Then sell that as an investment product to a hedge fund who then mix that up with a load of other similar products that are higher risk than they appear. Then allow people to invest in that fund which ‘promises’ high yield but low risk because the fund is made of lots of tiny high yield high risk investments which can’t possibly all fail at once. But then they all do…

I will see you all in the woods then – swap you four rabbits and a sprig of parsley for one pig – any takers?

It’s just gambling –
I know the City Bankers don’t like their industry called that and will spend hours denying it with lots of long words
but basically they’re taking a punt that the value of something in the future will be worth more than they bought it for and then doing a complicated bet to try and ensure they cover the bet.

<pedant> what is this loose thing – a desciption modern vocabulary?

loose
? ?/lus/ Show Spelled [loos] Show IPA adjective, loos·er, loos·est, adverb, verb loosed, loos·ing.
–adjective
1.
free or released from fastening or attachment: a loose end.
2.
free from anything that binds or restrains; unfettered: loose cats prowling around in alleyways at night.
3.
uncombined, as a chemical element.
4.
not bound together: to wear one’s hair loose.
5.
not put up in a package or other container: loose mushrooms.
6.
available for disposal; unused; unappropriated: loose funds.
7.
lacking in reticence or power of restraint: a loose tongue.
8.
lax, as the bowels.
9.
lacking moral restraint or integrity; notorious for his loose character.
10.
sexually promiscuous or immoral; unchaste.
11.
not firm, taut, or rigid: a loose tooth; a loose rein.
12.
relaxed or limber in nature: He runs with a loose, open stride.
13.
not fitting closely or tightly: a loose sweater.
14.
not close or compact in structure or arrangement; having spaces between the parts; open: a loose weave.
15.
having few restraining factors between associated constituents and allowing ample freedom for independent action: a loose federation of city-states.
16.
not cohering: loose sand.
17.
not strict, exact, or precise: a loose interpretation of the law.
18.
Sports .
a.
having the players on a team positioned at fairly wide intervals, as in a football formation.
b.
(of a ball, hockey puck, etc.) not in the possession of either team; out of player control.
–adverb
19.
in a loose manner; loosely (usually used in combination): loose-flowing.
–verb (used with object)
20.
to let loose; free from bonds or restraint.
21.
to release, as from constraint, obligation, or penalty.
22.
Chiefly Nautical . to set free from fastening or attachment: to loose a boat from its moorings.
23.
to unfasten, undo, or untie, as a bond, fetter, or knot.
24.
to shoot; discharge; let fly: to loose missiles at the invaders.
25.
to make less tight; slacken or relax.
26.
to render less firmly fixed; lessen an attachment; loosen.
–verb (used without object)
27.
to let go a hold.
28.
to hoist anchor; get under way.
29.
to shoot or let fly an arrow, bullet, etc. (often fol. by off ): to loose off at a flock of ducks.
30.
Obsolete . to become loose; loosen.
—Idioms
31.
break loose, to free oneself; escape: The convicts broke loose.
32.
cast loose,
a.
to loosen or unfasten, as a ship from a mooring.
b.
to send forth; set adrift or free: He was cast loose at an early age to make his own way in the world.
33.
cut loose,
a.
to release from domination or control.
b.
to become free, independent, etc.
c.
to revel without restraint: After the rodeo they headed into town to cut loose.
34.
hang / stayloose, Slang . to remain relaxed and unperturbed.
35.
let loose,
a.
to free or become free.
b.
to yield; give way: The guardrail let loose and we very nearly plunged over the edge.
36.
on the loose,
a.
free; unconfined, as, esp., an escaped convict or circus animal.
b.
behaving in an unrestrained or dissolute way: a bachelor on the loose.
37.
turn loose, to release or free, as from confinement: The teacher turned the children loose after the class.

lose (lu?z)

— vb , loses , losing , lost
1. to part with or come to be without, as through theft, accident, negligence, etc
2. to fail to keep or maintain: to lose one’s balance
3. to suffer the loss or deprivation of: to lose a parent
4. to cease to have or possess
5. to fail to get or make use of: to lose a chance
6. ( also intr ) to fail to gain or win (a contest, game, etc): to lose the match
7. to fail to see, hear, perceive, or understand: I lost the gist of his speech
8. to waste: to lose money gambling
9. to wander from so as to be unable to find: to lose one’s way
10. to cause the loss of: his delay lost him the battle
11. to allow to go astray or out of sight: we lost him in the crowd
12. ( usually passive ) to absorb or engross: he was lost in contemplation
13. ( usually passive ) to cause the death or destruction of: two men were lost in the attack
14. to outdistance or elude: he soon lost his pursuers
15. ( intr ) to decrease or depreciate in value or effectiveness: poetry always loses in translation
16. ( also intr ) (of a timepiece) to run slow (by a specified amount): the clock loses ten minutes every day
17. (of a physician) to fail to sustain the life of (a patient)
18. (of a woman) to fail to give birth to (a viable baby), esp as the result of a miscarriage
19. slang motor racing to lose control of (the car), as on a bend: he lost it going into Woodcote
20. slang lose it to lose control of oneself or one’s temper

</pedant>

You can hedge for risk reduction as much as for making a profit – eg we buy a lot of things from the US so we also hedge on currency so that if the exchange rates change significantly for the worse (eg make it more expensive to buy things in dollars) then we make a profit on the currency to cancel it out. Conversely if the exchange rate changes to our favour we then lose out on the currency hedging but what it means is that we are in control and won’t suddenly get hit by unexpected shifts. A bit like the effect of taking a fixed rate mortgate instead of a variable rate.

Hedging for reduced currency exposure in international trading is critical in things like the bike market – that’s why there can be quite a long lag between exchange rates moving and prices going up, as happened a few years back when GBP weakened. IMO that’s good hedging. The more recent hedge fund stupidity was akin to bookies laying off in ever more convoluted ways and then relying on their importance to national stability to get them out of trouble when the metaphorical hit the fan.

There’s a lot of chaos theory based modelling in the most advanced instruments but it’s arguable that much of it relies on it being self-fulfilling because the main movers in the market are all following closely related strategies. Once outside market forces, like a whole load of impoverished unemployed Americans with 100%+ mortgages defaulting at once, interfere, suddenly the models don’t perform so well.

All as above.

Mrs North is busy trying to covince one of her friends, a recently redundant academic mathermatician, to head to the City and pay off his mortgage in a year.

So, he won’t be a hedge fund manager with their millions a year incomes, but a bright guy like him can make some decent cash doing an easier version of stuff he already knows.

Cousin was a hedge fund manager.Left uni and started work in the city at 30.Retired at 44.Judging by the size of his house [sorry,mansion]in witshire it’s quite well paid. 8O.