The forex market is a popular trading place for hedge fund managers because of the volatility and liquidity that this market entails. Hedge funds necessarily entail higher risk than traditional mutual funds do. Their main purpose is to protect against catastrophic losses in other markets, so hedge funds attempt to make money in markets even when domestic stocks are losing major ground.
Currency is popular amongst hedge funds because currencies are a global phenomenon. Even if the base currency’s market is tanking, there will be a market somewhere in the world that is doing well. For example, if stock markets within the United States are in a prolonged bear trend there will be a market somewhere in the world that is going through a bull period. When U.S. stocks are dropping, the dollar often drops relative to other currencies. This makes selling the dollar in exchange for a currency that is increasing in value a good way to protect your other domestic investments.
A hedge fund is not subject to the same laws as other mutual funds. They are designed for people with a large amount of expendable capital and as such, the laws for entering a hedge fund are a bit stricter. However, once your money is in a hedge fund, the manager has much more freedom than a traditional fund manager does. The largely unregulated forex market is a perfect match for hedge funds because of this.
