ELI5: What is a hedge fund?

A hedge fund is like a special piggy bank for very rich people that tries to make even more money by using clever and sometimes risky tricks.

Imagine you and your friends all have lots of allowance money. Instead of just keeping it in your regular piggy banks, you decide to pool your money together to form a super-piggy bank. This super-piggy bank is a hedge fund.

Now, instead of just buying candy with your allowance, you hire a very smart older kid (a fund manager) to use the money in ways that might make even more money.

• The fund manager might buy things they think will become more valuable, like rare trading cards. This is like investing.
• But they can also do trickier things, like betting that the price of a certain comic book will go down (this is called short selling). If they are right, they make money! But if they are wrong, they can lose money.
• They might even borrow more money to buy even more cards! This is called leverage. It can make them even richer if they're right, but also much poorer if they're wrong.

So, a hedge fund is a way for rich people to try and get richer by using clever and potentially risky investment strategies, managed by a professional.