How to trade like a Wall Street hedge fund manager
The dream of most people in finance is to become successful hedge fund managers. They are mostly interested in the business because of the exciting rewards that come with it. They are also interested in it because of the little amount of work involved. The daily activities of hedge fund managers is all about looking at charts, watching the news, and trading. This article will explain what a hedge fund is and how you can start yours.
What is a hedge fund?
A hedge fund is a company that is involved in managing other people's money. Managers start small and raise money from outside investors. These investors either don't know much about investing or don't have the time to do it. They generate their income from two fees. The first one is the administrative fee. This is often 2% of the amount the investor has invested. The second fee is known as the incentive fee. This is usually 20% of the profits that the trader has generated. The biggest hedge fund in the world is the Bridge Water Associates, which has more than $160 billion in assets under management.
Most hedge funds started small. For example, Greenlight Capital started with $900K. Today, the fund has more than $6 billion in assets. Therefore, you too can start a fund and make it grow.
How to Start
The first thing you need to do is to have interest in the financial market. Interest is important because you will have a boring life staring at charts and following on economic and financial news.
Second, you need to learn about trading and investing. Fortunately, you don't need a degree to become a hedge fund manager. Today, there are hundreds of books about this topic that you can buy for a few dollars in e-commerce sites like Amazon. As you learn, you should continue practicing using a demo account.
Third, after spending a couple of months learning and creating your strategy, you should now find a reliable broker such as easyMarkets, and open a live account. As you will realize, trading with real money is different from trading on a demo account from a psychological perspective. In this trading, you should ensure a couple of things. First, you should journalize all your trades. This involves writing down the security that you have bought, the price at which you have bought it, and the reason for buying it. When you exit the trade, you should also state the reason for doing this. Second, you should use a small leverage. This will help protect your account. Finally, you should have excellent risk management skills.
Fourth, after trading for yourself for a good amount of time, you should now incorporate your fund and start fundraising. You should ensure that your fund is registered in accordance to the law. This will help you attract more money from investors. The goal for your first round is to find a small group of investors. This can be family and friends.
After raising some money, you should now focus on growing the account. You should follow the risk-averse strategy you have used in your account with the new funds. Also, you should always inform your investors about the performance of the fund. This will help them have faith in you. Failure to disclose loss and profits has led to the destruction of many money managers.