Many forex managers who decide to start forex hedging trading funds have a great understanding of their forex investment strategy but are not quite sure what should be the terms of their hedge fund. This article will provide an overview of some of the more common terms for a forex hedge fund (fees, lock-ups, withdrawals, etc). As with any program a manager should not feel compelled to fit the terms of their specific program to these “common” terms.
Forex hedging is not for beginners, nor for those without a significant pool of risk capital to invest. In fact, hedge funds - generally speaking - are not wise investments for the average person.
First, let's discuss forex hedging trading What are they, exactly?
Hedge funds are private investment partnerships, usually managed by wealthy individuals - e.g. - other investors, business people, commodity pool operators and all-around financial tycoons.
However, the Securities and Exchange Commission does not impose any strict rules on who may start a hedge fund. In fact, if you won the lottery tomorrow, you could start your own hedge fund. This free-market, 'anyone can play' philosophy is the first high risk factor that should steer you clear of Forex hedging.
The second factor is the high risk associated with the strategies involved in forex hedging trading. You've probably heard about futures contracts, derivatives, 'put' options and the like, yes?
If you've been doing your homework, then you already know that these 'investments' revolve around the highly speculative trading strategy of 'selling short'. Really, this is why we call it forex hedging trading you're hedging your bets either for or against the given financial instrument based on short-term market fluctuations.
It is difficult enough for the average investor to predict short-term movements on every day stocks; but, try doing so on the even more volatile foreign exchange market and you'll understand why Forex hedging is so risky.
It takes years of experience, coupled with a very sophisticated understanding of the world economy, to profit from a forex hedging trading, and even more to manage one.
So, if you are investing for your future, your family's future, your children's education or any other closely held dream, then I suggest you stick to the time-honored mid and long-range investment strategies like stocks, bonds and IRAs. There are plenty of high-yield options in the latter category, especially.
And if it is wealth you're looking for, then consider starting your own business. A second income can help you get out of debt, and sock even more money into savings and investments.
Remember that the smartest forex 'hedge' you can make for your financial future!
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