A Modern Investment Cocktail: Hedge Funds and Algorithmic Trading
A Quick Look at Hedge Funds through the Lenses of Algorithmic Trading
Hedge funds frequently make headlines in the financial press and are often associated with good returns. Dictionary definition of “hedging” is the pursuit of protection from unwanted consequences such as losing money, which is always a dreadful probability for investors and traders. In the world of trading, hedging refers to highly elaborate investment strategies that seek to improve profits or offset potential losses. However, despite being designed with the aim of creating higher returns and reducing risks, traders and investors might consider them to be risky since hedge funds do resort to some aggressive investment strategies.
Moreover, the arrival of algorithmic trading hedge funds has taken the phenomenon of hedge funds to yet another level. Already being flexible and more proactive than ordinary funds, hedge funds can be turned into even more advanced pools of investment via hedge fund algorithms.
How Hedge Funds are Different from Mutual Funds
Basically, mutual funds and hedge funds are both enormous pools of funds or in other words, portfolios. With that being said, there are a number of differences that distinguish hedges funds from mutual funds. First and foremost, hedge funds are not tightly regulated or subject to very strict regulations unlike mutual funds. Therefore, there is limited or sometimes no regulatory oversight over hedge funds and they are not required to register with regulatory bodies. The fact that hedge funds are kind of exempted from various mechanisms of control and restrictions allows managers of these funds to take up more aggressive investment trajectories.
Wild and Free
Another key aspect of hedge funds is that they are not open to all investors. Immune from strict regulations, hedge funds are only available for accredited or qualified investors. In parallel to this exclusive nature of the funds and since they are not offered to the general public, hedge funds are not usually publicized like conventional funds. Hedge fund investors are generally believed to be more aware of investment risks.
Thanks to the esoteric nature of these funds and greater freedom they are entitled to in comparison with mutual funds, hedge fund managers can turn to a great range of investment methods that are not available to the managers of tightly regulated funds like mutual funds.
Profit Margins
Aggressive and more flexible investment strategies contribute to the profit rate of hedge funds and hedge fund performances are usually calculated through 2 different benchmarks: absolute return or relative return. While absolute return refers to the rate of return (like 35%), relative return refers to a comparison between the profit rate of the hedge fund and another index like Dow Jones Index.
Strategies like short selling, leverage and derivatives help hedge funds to increase their performances.
Why Hedge Funds?
There are a number of good reasons to invest in hedge funds. First and foremost, hedge funds help you manage and reduce risks. To put it in another way, hedge funds are a sort of insurance against unexpected or unwanted turmoils.
Another reason to go for hedge funds is the capability of these funds to quickly adapt to changing market conditions. Currency, commodity, bond and stock markets are all exposed to wild changes that can happen in the blink of an eye due to the ever-dynamic nature of the world economy. Hedge funds’ greater ability to weather market storms comes from their having a wide range of risk-management techniques and also results from the fact that they are not under strict oversight, enjoying relative freedom in their operations.
Risk-handling and Diversification
Putting all of your eggs in the same basket could be an ultimately costly mistake for any investor or trader. Given that diversifying your portfolio helps you survive during difficult times and limit your financial suffering, hedge funds as great diversification tools are always a good idea. Holding huge amounts of funds and enjoying an exclusive level of freedom, hedge funds can always mitigate the risks through diversification.
Hedge Funds and Higher Returns
In addition to its promising diversification and risk-handling capacity, another very basic reason to opt for a hedge fund is the expectation of higher returns. Since hedge funds can use leverage and borrow money in order to increase their investment potential, they do offer much higher returns.
Taking the fact that hedge fund managers usually don’t have to worry about paying taxes, it makes sense for investors ( in the case of hedge funds, of course not all investors) to turn to hedge funds in a bid to increase their overall rate of return.
Algorithmic Trading and Hedge Funds
The 21st century belongs to ground-breaking innovations in the field of information technologies and Zeus Capital aims to be one of the driving forces behind these innovations. Thanks to its pioneering algorithmic trading modules, Zeus Capital is a game changer in the world of trading.
Bearing in mind the fact that hedge funds are innovative investment alternatives, algorithmic trading products like those offered by Zeus Capital are likely to be in the toolkit of hedge funds that are famous for their aggressive trading patterns.
