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Hedge Fund Investing Strategies

Hedge funds can incorporate various strategies. They are as follows:

  1. Selling Short

    This technique is applied when the investors hope that the price of the shares will decrease in the future. The strategy includes the selling of shares that you don't possess and repurchasing them when the price falls.

  2. Arbitrage

    Under this strategy an investor tends to take advantage of price differences and inefficiencies between different, but related securities. For example, an investor applying this strategy can long convertible bonds and at the same time short the corresponding issuer's equity.

  3. Options and Derivatives Trading

    This strategy represents the signing of a contract the value of which is dependent on the performance of the financial assets, index or whatever investment part of the contractual agreement.

  4. Event Anticipation

    Some investors use hedge funds when they expect that a major event is about to occur, such as a merger, takeover, spin-off and etc.

  5. Deep Discounted Securities Investment

    This strategy includes the investment in securities of companies that are expected to enter or exit a major financial bad conditions or bankruptcy. The strategy is usually applied under the value at which the liquidation is done.

The overall success of hedge fund strategies is facilitated by the independence of hedge funds from the movement of the equity market.

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