Posted by on Jun 21, 2017 in Investment Fraud | 0 comments

A hedge fund is a sum fund from accredited investors. This is used to invest in a variety of assets, including derivatives and leverage in local and international markets, with the intention of generating high returns.

Because hedge funds are only available to accredited investors and not to the general public, they often bypass regulations and licenses that are required for typical investment companies. For this reason, hedge funds are more flexible because they can do more and they have a wider range of where they can be invested. They can be put into currencies, derivatives, lands, real estates, stocks, or wherever else.

But you cannot say the same for other funds. For example, mutual funds have to make do with bonds and stocks only.

Risk

The term “hedge” is used here as a symbolic line of bushes that limits risks, but in time, many hedge funds strategies have developed, including those that do not limit the risks at all.

But what are these risks anyway? Below are some of the most disastrous risks associated with hedge funds:

  • Some investment strategies that usually just end with minimal losses end with huge losses
  • Some investment strategies make them too vulnerable to huge losses
  • Usually require accredited investors to lock up money for numerous years

Fraud

Since hedge funds are only accessed by certain investors and can often bypass regulations and licenses, there is also the possibility of fraud. This can happen in two ways. First, it can happen when a hedge fund company promises high returns with little to no risks but the investors end up losing money. Second, the hedge fund company itself is a fraudulent organization that exists just to take the money of investors, and usually use market fluctuation as an excuse why investors have lost their money.

According to the website of Erez Law, those who have been victims of hedge fund fraud may have legal options. This is good news, especially that this is about their hard-earned cash that is trying to be stolen from them by malicious organizations.

Before investing in hedge funds, or investing anywhere for that matter, investors should always know the risks and possibilities of fraud.

 

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