Hedge funds use various forms of leverage to generate high returns, and they do so by investing in credit lines, hoping that the return will be higher than the interest rate. They buy securities with leverage, which means they use brokers "money for large investments. Hedge funds also trade in derivatives that they believe carry asymmetric risks, and these bets are placed against themselves. With leverage, hedge funds raise returns, but increase the risk of failure and increase losses, because
There are two types of hedge fund investments: equity and bond investments. Investment funds primarily invest in stocks and bonds that deliver returns that replicate or try to beat the benchmark index. Hedge funds can seek absolute returns or employ several more complex strategies, including short selling, leverage and derivatives, and seek returns in the range of 10% to 20%.