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Hedge funds are different than mutual funds in many ways. First of all, a hedge fund is primarily used by wealthy institutional or individual investors.
It uses aggressive investing strategies that are forbidden for mutual funds, including short-selling, leveraging (borrowing money to buy assets), swaps, arbitrage, and derivatives.
Unlike mutual funds, hedge funds have much less regulating rules. The law restricts hedge funds to no more than 100 investors per fund, and subsequently, the minimum investment amounts are very high ranging anywhere from 250,000 $ to over 1 million $. The investors pay a management fee just like for mutual funds, however, hedge funds also share a percentage of the profits usually amounting for 20%.
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