What is a hedge fund? And what does it mean to hedge your bets?
Hedge funds are companies which pool capital from wealthy clients with a view to maximising return. They invest in all asset classes - bonds, equities etc - and because of the scale of their investments can profit from small price movements. The largest hedge funds are also 'market makers' - their investment decisions influence others. The verb "to hedge" means to "insure oneself against loss but some successful hedge fund managers have been very aggressive in their investment strategies. The credit-default swaps market (famously described by Warren Buffett as 'weapons of mass financial destruction') is an example of this. In general English 'hedging your bets' is to approach an uncertain situation by taking action to cover a variety of outcomes. When a bookmaker receives a large bet on a particular result, he will generally 'lay off' the bet with another bookmaker. This mean by betting a smaller amount on the opposite outcome.