A hedge fund is actually a type of investment which participates in a wide variety of opportunities and trading activities in comparison to other types of funds. However, hedge funds are generally available to a particular class of investors as specified by regulatory agencies. Every individual cannot make investments in these funds. Only particular investors can place their money in them. Institutions like university foundations and endowments, pension funds, or people with large net worth are allowed to make investments. The money invested in a hedge fund is used in a wide variety of investments. However, liquid securities are the most common investment which is generally traded. These funds use various investing strategies such as leverage and short selling so that they can maximize the return on investment.

The investment value of an investor within a specific fund is determined by his actual share of the net asset value of the fund. Consequently, the rise and fall in the value of the fund's assets as well as the fund expenses are reflected in the sum that an investor can take out later.

The practices of hedge funds are generally aimed at attaining positive return on investment, no matter whether the financial markets are rising or falling. The fund managers are professional and properly qualified in managing finances and investments. They're given a management fee to compensate them for their expertise and a performance fee when the overall value of the fund increases during the year. Investments valued at billions of dollars are invested in these funds. Based on one estimate, the size of the global hedge fund industry is around 2 trillion US dollars and it is expected to expand rapidly during the coming years.

As these funds are not open to the general public, there are actually minimal restrictions with regards to investment and the strategies associated with management of these funds when compared to funds which are open to the general public. This is the key reason why these types of funds have a great deal of freedom to engage in a wide range of investments and trading activities.

People with significant amounts of cash to invest and are prepared to take serious risks prefer to invest in these funds. Considering that the risks concerned are higher, investors can lose their whole investment very easily. Also, these funds promise huge return on investment and investors can even double their funds very quickly. Thus, individuals who love to take risks to gain larger returns prefer to invest in these funds.

Investment in hedge funds offers you a great opportunity to earn big gains in a very short period of time. However, the risks are equally high. Since the funds are professionally managed, these types of funds promise greater return on investment despite the risks related to investments and trading activities.

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