Hedge funds have been criticized for years as money waiting to be lost, but despite the criticism they have evolved and emerged as the go-to for generating high returns due to new trading methods and strategies.
Hedge funds have incorporated themselves into Wall Street as an integral piece of the investment puzzle, and these new strategies show you why you should be jumping to use them right now.
The Convertible Arbitrage Method
A convertible is a hybrid that includes a combination of a bond with an equity option. These hedge funds generally contain long convertible bonds as well as shares that are converted. The focus of these is to exploit mispricing between the convertible bond it holds and the stock underlying it.
This strategy is great for those who are excited by volatility in their hedge funds. Bouncing shares equal the opportunity to book trading profits.
Once considered to be used only by machines, there are now companies who have created methods of using the same algorithmic trading techniques for people.
In essence, algorithmic trading uses mathematical rules to make decisions regarding buying and trading. Quant algorithmic trading techniques are typically used with stocks but also can be applied to funds that trade futures.
People use this strategy by finding companies offering it and shopping for those options that interest them and match their investing criteria. They turn on the strategies they are interested in and trades are then automatically made in their regular brokerage account. Users have complete visibility in all aspects of the trade and can stop it at any time.
Capital Structure Arbitrage
This strategy is gaining headway in hedge funds with increasing speed. In a capital structure arbitrage, undervalued security is bought and then the overvalued security is sold, with the overall objective of profiting from the inefficiency in the capital structure of the issuing firm.
This credit hedge fund strategy can be used in directional, quantitative and market neutral funds.
Global Macro Strategy
With the ever-increasing data collection and observations of global changes, this hedge fund strategy has been able to develop to create extremely accurate bets.
The global macro strategy objective is to profit from economic and political changes throughout the world, focusing on the interest rates and currencies of those countries in the midst of change. The variables are analyzed by investment managers and an investment strategy is created based on the determination of the impact that those variables will have on the economic market.
Techniques such as systematic analysis and long and short-term holdings are used, making the global macro strategy detailed and often accurate.
Choose Your Hedge Fund Strategy
Depending on your level of comfort with hedge funds, you may want to invest in a simple, hands-off strategy in which you rely on experts to advise you on your investment, like the global macro strategy, or you may prefer to handle those investments yourself with machine accuracy in a technique such as algorithmic trading.
Whichever strategy you choose, now is the time to get involved in hedge fund trading.