What is a hedge fund? According to the experienced investor [Shaye Hirsch][1], a hedge fund is basically a striking name for an investment company. It is the marriage between a fund manager, who is often referred to as the general partner, and the hedge fund investors, who are sometimes referred to as the limited partners. The limited partners contribute the money and the general partner manages it according to the fund's strategy. As Shaye Hirsch explains, the purpose of a hedge fund is to maximize the returns of investors and eliminate risk, hence the word "hedge" (coverage). If these goals sound a lot like the mutual fund's objectives, they are, but that's where the similarities end. The name "hedge fund" arose because the purpose of these funds was to make money regardless of whether the market rose or fell. This was made possible because managers could "protect" themselves by operating long or short with stocks (short trading is a way to earn money when an action falls). Hirsch points out the key features of a hedge fund: • They are only open to "accredited" or qualified investors. Investors in hedge funds have to meet certain equity requirements to invest in them (a wealth of more than one million dollars without including their principal residence). • Greater investment latitude. The investment universe of a hedge fund is limited only by its mandate. A hedge fund can invest basically in anything (land, real estate, stocks, derivatives, currencies). Mutual funds, on the other hand, are limited to stocks or bonds. • They often use leverage. Hedge funds will often use the borrowed money to amplify their returns. As we saw during the 2008 financial crisis, leverage can also wipe out hedge funds. • Fee structure. Instead of charging an expense ratio alone, hedge funds carry both a proportion of expenses and a performance fee. The structure of common commissions is known as "two and twenty": an asset management fee of 2% and 20% of the profits generated. [1]: https://zenodo.org/record/1494087