hedge funds---Funds
that are open to investors with rather large chunks of capital.
There is a fee paid to a hedge fund manager based on how much money is made in
the markets. These funds make use of a wide variety of financial
instruments and strategies to protect against risk, or so
it is said. Large deals can be done on paper in dark pools,
eventually impacting the electronic markets which are basically run by computer
trading algorithms, and can have the effect of naked
short selling. Ironically, hedging transactions may actually create
more risk to others both inside and outside of these transactions and in the
end they could actually cause and reinforce default
and recessions/depressions by
diverting real capital investment. Some
insist they don’t take into account counterparty risk. With everyone so
connected around the globe these things can be dangerous, at least according to
legend. On the other hand, some insist hedging is necessary to insure a smooth
pricing structure forward in the future.