Hedge funds are mostly for...

Wealthy people and institutions

Hedge funds | TradeLiga

Hedge funds are famous for big wins and spectacular blow-ups. They're private funds for wealthy people and institutions, such as pension funds and universities.
The name comes from Alfred Winslow Jones, who in 1949 "hedged": he bought shares he liked and sold short ones he didn't. Today hedge funds also borrow heavily and trade almost anything.
The classic fee is "2 and 20": 2% of your money every year, plus 20% of any profits. Many funds now charge less, but fees are still high.
In 1998 Long-Term Capital Management, run by star traders with two Nobel prize winners as partners, used leverage of about 25 to 1: around US$25 borrowed for every US$1 of its own.
Russia defaulted on its debt in August 1998, markets moved the wrong way and LTCM lost about US$4.6 billion within months. The New York Fed got banks to put in US$3.6 billion to avoid a wider panic.
Common mistake
Myth: "Geniuses can't blow up." Leverage turns small mistakes into big ones. In 2021 Archegos, a family office, collapsed and the banks that lent to it lost more than US$10 billion.
Key takeaway
Hedge funds can short, borrow and charge high fees. LTCM and Archegos show that risk control beats brains.

Hedge funds are mostly for... Wealthy people and institutionsThey're private funds with high minimum investments, open mainly to rich investors and big institutions.
"2 and 20" means... 2% a year plus 20% of profitsThe fund takes 2% of the money it manages each year, plus 20% of any profits it makes.
What nearly sank Long-Term Capital Management in 1998? Heavy leverageWith about 25 to 1 leverage, a small move against its positions could wipe out much of its capital.
A fund manages US$1 billion and makes a 10% profit. Under "2 and 20", about how much are the fees? US$40 million2% of US$1 billion is US$20 million, and 20% of the US$100 million profit is another US$20 million.