Financial Institutions Flashcards
1
Q
What is a Hedge Fund?
A
- Hedge funds are financial partnerships that pool funds and use these pooled funds and employ different strategies to provide active returns for its investors
- Generally only accessible to accredited investors (large sums)
2
Q
What is the purpose and strategy of hedge funds?
A
- Use more aggressive and complex methods to bring returns such as making use of derivatives and leverage.
- Hedge fund teams mostly mimic traders than investors – they make mponey regardless whether the market is trending upwards or downwards
- Purpose is to maximise returns and minimise risks.
3
Q
What is a Proprietary Trading Firm?
A
- This is a financial firm or investment bank that invests directly for market gain as opposed to investing for clients to earn commission.
- Also known as prop trading
4
Q
What is involved in a proprietary trading firm?
A
- May involve the trading of stocks, commodities, bonds, currencies, etc.
- They believe they have a competitive advantage over index investing, bond yield, etc.
- Uses the firm’s capital and balance sheet to perform self-promoting financial transactions.
5
Q
What is an Asset Management Firm?
A
- An Asset Management Company (AMC) is a firm that invests pooled funds from clients, investing in stocks, real estate, etc.
- They’re distinguished by the amount of assets under management.
6
Q
What is involved in an Asset Management Firm? Give examples of them
A
- They manage High Net Worth Individuals (HNWI) as well as hedge funds, pension plans, etc.
- For smaller investors they create pooled asset funds which they can manage in a single centralised portfolio.
- Examples are Vanguard group, Fidelity investments.
7
Q
What is a High Frequency Trading Firm?
A
- These firms provide an automated trading platform that large investment funds, hedge funds and institutional investors employ.
8
Q
How does a High frequency trading firm work?
A
- Uses computers to automate, process and execute a huge number of transactions at high speeds
- High speeds and analysis gives those who use the platform an advantage in the open market
- Use complex algorithms to analyse the markets and spot emerging trends in fractions of seconds.
- Essentially they anticipate and beat trends in the market and execute buy/bid orders to provide profitable market moves for platform users.