Of late, hedge funds have become dynamic thanks to their skillful managegment and the existing market inefficiencies. However, those involved in the management as well as the academicians are hard put to explain the phenomenon. This article is an attempt to do that, covering various aspects like market influence on these funds, investment strategies, etc.

Hedge fund is one of the many investment avenues available to investors. A hedge fund, as the name implies, is a fund that usually `hedges' so that the fund will do well whether it is a bull market or a bear market. Hedge fund managers put their sincere efforts to ensure targeted returns irrespective of the underlying trends in the financial markets. Hedge funds are rather private funds managed by professionals and these are principally a private pool of money. By and large, they can be considered as mutual funds of high net worth and typically high-risk investors. These involve a group of private qualified purchasers that are limited in number and characterized by minimal regulations.

Mostly, high risk-appetite private investors are fascinated by the high returns and the special features of hedge funds like high leverage, flexibility, nominal disclosure requirements, confined membership and minimum investment. The basic ambition of `making billions of money' can be achieved by investing in hedge funds which are commonly considered to be highly aggressive and these involve many `multifaceted and unconventional' financial transactions which range from short-selling to arbitrage, commodities, derivatives, leverage, foreign exchange and so on and so forth. In a nutshell, they put into practice an extensive range of trading strategies, from equity, fixed-income, Commodity Trading Advisory (CTA) portfolios, or mathematical algorithms and strive to capture market inefficiencies. Now, we all know that hedging is playing on differences and taking advantage based on the differences in prices in the markets across the globe.

Hedge fund managers focus on `high frequency trading' to gain competitive advantage. To beat the market, a range of automated trading techniques is being employed and they are commonly known as high-frequency trading, and Volume Weighted Average Price (VWAP). With an aim of succeeding, hedge fund managers have started to acquire and develop algorithmic trading techniques. During the recent capital market turmoil, the hedge funds which are one of the alternative investment vehicles were also put to loss. But, the hedge funds were able to compensate their loss and the overall performance has been remarkable.

Treasury Management Magazine, Hedge Funds , Commodity Trading Advisory , CTA, Foreign exchange markets, Volume Weighted Average Price , VWAP, E-trading, Lee Ainslie's Maverick Fund, Long-term Capital Management , LTCM, Mortgage markets, Gross domestic products, GDP, Securities and Exchange Board of India, Sebi, Indian Financial Market system.