What is a Forex Hedge Fund?

April 24, 2010

We are finding increased interest in Forex hedge funds. Before discussing in depth, we should start  at the beginning and answer the basic questions.

What is Forex ?

The term “Forex” stands for foreign exchange. The foreign exchange market is a global market where currencies are traded and these trades take place 24 hours per day.

How does Forex work?

The idea is to buy one currency and sell another. Exploiting difference in the exchange rate is where the forex money is made. Because of the worldwide market and various time zones, exchange rates are constantly changing base on the latest news an events in the markets in which one trades.

Why a Forex Hedge Fund?

If a trader has been successful in Forex trading, he can then leverage other people’s money in the process and be that much more successful in terms of absolute dollars earned. Investors want to see fund managers with “skin in the game.” So, when a Forex hedge fund manager is personally invested in the fund (as they often are), it brings additional credibility to the fund.

A final thought. The process of starting a hedge fund can be somewhat tricky. Hedge funds bring with them compliance rules an regulation that must be followed.

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