Hedge Funds: Getting to Know the Jargon

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Nowadays people are placing increased levels of interest in building up their personal financial portfolio. This means that they’re constantly looking for new ways to show that they are competent with investments and making positive financial decisions. A great way to get engaged with this is to take part in hedge fund schemes. Now, at first glance, hedge funds can come across as relatively complicated, but a lot of this is down to the jargon that is employed when people speak on the subject. So, to clear away any confusion and maximize your odds of getting sufficiently to grips with the concept to actually try your hand at hedge funds, here are a few definitions to get you started on the right foot!

Software

First things first, you should be aware that there are different types of trading software out there that allow you to engage with hedge funding while minimizing the risk entailed. These tend to work on algorithms and help you to develop strategies, backtest, optimize these strategies, and engage with live trading easily. Some of the most popular versions include “Algo Terminal,” so if you hear people referring to “Algo Terminal”, they are referring to the trading software that helps them to engage with this entire process.

Partners

Hedge funds are a form of investment partnership. You never go into a hedge fund alone. You work alongside a group of other individuals who pool money and invest it into various different areas in order to rake back a little (or a lot of) profit which can be split between you. The two types of partners that you should be aware of are known as “limited partners” and general partners.

Limited Partners

When it comes to hedge funds, you’re very likely to play the role of a “limited partner.” The limited partners in this arrangement are the investors – the people who put assets or investments into a pool that can then be used as a form of tender to trade on the market.

General Partners

General partners, when pertaining to the topic of hedge funds, are otherwise known as professional fund managers. These are the individuals who take the money pooled together by the limited partners and invest it with an eye for making a return.

Investment Latitude

Investment latitude is detailed in the mandate of the hedge fund. It is essentially the scope of areas that the general partner is permitted to invest in. Generally speaking, this is usually pretty far and wide-reaching in hedge funds. You could find your money being invested in stocks and shares, real estate, currency, or a whole scope of other areas.

Leverage

Some hedge funds make use of “leverage.” This means that the money and assets pooled by the limited partners aren’t necessarily their own. They might have taken out a loan in order to maximize their returns!

These are just a few key pieces of jargon that come hand in hand with almost any conversation on hedge funds, so it’s best to be aware of them before dabbling in the field!

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