What does a trader at a Hedge Fund do?

What does a trader at a Hedge Fund do?

Hedge funds are pools of capital from various investors, that are used by hedge fund traders (also called Portfolio Managers) to generate profits in financial markets. They can trade various type of instruments: equity, debt, derivatives, etc. and also make money in rising and falling markets. 

Traders at hedge funds basically have the same job as proprietary traders in investment banks, except that in a hedge fund they are trading investors' money as opposed to using the investment bank's money at a bank. Traders at hedge funds get a cut of the profit they generate, but also charge a "management fee". The management fee is supposed to be covering the cost of running the business i.e. IT infrastructure, rent, basic salaries, etc. The cut of the profit they generate is paid as bonuses to the traders, but a part is typically reinvested into the hedge fund.

So why would you work at a hedge fund as opposed to work at an investment bank?

The proprietary trading business at investment banks has been declining in the past years as it is very risky. Therefore a lot of traders at investment banks have now moved on to join or launch their own hedge funds.

At a hedge fund, traders are able to invest their own money as well, and thus generate much more profits for themselves if they are good at what they do.

Large hedge funds can be particularly attractive to work for because of the "management fee" they charge. For example, a £1bn hedge fund can change a 2% management fee per year. This is equivalent to £20m per year, and more than covers for the running costs of the fund and can be a significant source of profits as well.