How hedge funds have changed the markets
Nothing has changed the way markets work as much as hedge funds. While these funds are relatively new on the scene, they attract big dollars with the promise of hefty, unregulated returns. So far all we’ve seen is increased volatility.
Hedge funds are the counterculture of investing. Run by savvy managers and financed by the world’s billionaires, hedge funds are to the 2000s what the 1990s were to Swiss bank accounts. Hedge fund scream style and class and with few regulations, they’re now making the markets scream.
Hedge funds are associated with the super rich, and until just a few years ago, super rich meant multimillions. New-age hedge funds have lower investment minimums but still offer the shaky, volatile ride associated with larger scale funds.
Hedge funds can both sell short and buy long positions. They can also take part in dangerous, highly leveraged commodity markets and make investments in what we would now consider to be non-traditional investments. The by-product of this new financial freedom is the increase in volatility. Hedge funds run very active trading schedules which has made the daily markets a battle to the death.
In the war zone that is the stock exchange, hedge funds buy and sell to pick up pennies at a time. What hedge funds lack in percentage gain is multiplied by volume and the ability to leverage positions. Hedge funds are the source of sporadic 200 point swings on the Dow and institutional powerhouses that keep stocks in various price ranges.
Hedge funds have changed the markets in a variety of ways:
Increased volume automatically brings more volatility. A small change in a stocks price can lead to a dumping of shares by institutions and large hedge funds, causing a run in the bank. Hedge funds are also accountable for moving the market’s money in masse. Due to consolidation, more and more investment dollars flow together rather than separately, creating huge sector-wide boom-bust cycles. These funds also bring in big money from rich investors. Hedge funds usually lead the way in gains, further proving that you need money to make money.