The hedge fund is a mysterious financial instrument that is usually reserved for investors with substantial net worth, and are not available to the normal folk, so to speak. Hedge funds, in the simplest sense, is somewhat like a mutual fund, where a pool of capital is put together to undertake various investments in order to achive collective profits for the investors.

Nonetheless, mutual funds are highly regulated and they are limited to very specific investments and strategies. For example, mutual funds can only use buy-and-hold strategies, and many are confined to investing in sectors in which the fund was designated to.

Hedge funds, on the other hand, have almost free reign to invest in anything that is legal. Not only are hedge funds free to invest in any type of legal instrument (stocks, bonds, furutes, mutual funds, derivatives, ETFs, commodities, Forex, etc.), they can also use leverage and engage in short-selling to magnify their position, hedge against the market, and attain absolute returns. On top of that, hedge funds can also invest in less liquid instruments such as real estate, private equity, and in some cases, even hard money loan lending.

Another main difference between hedge funds and mutual funds is that while mutual funds strive to achieve market-relative returns (i.e. beat the general market), hedge funds try to attain consistent absolute returns. What this means is that mutual funds would be happy beating the broader market by a certain amount, where a hedge fund will try to maintain a consistent return year over year. For example, a hedge fund would try to return 15 or 20 percent year over year, whereas a mutual fund might try to beat the broader market index by 5 percent. So a mutual fund would have a good year by making a 13% return while the market only returned 8%. But on the flip side, if the market tanked by 7%, a mutual fund could still boast a "decent" year if it just went down by 2%, because it's all relative to the market.

So hedge funds sound really cool huh? You know, absolute returns regardless of market conditions and all that good stuff. But here's the catch: Hedge funds are only available to what are known as "accredited investors". We are not going to go through what an accredited investor means here, but in a nutshell, it refers to people or entities who have either attained a substantial net worth, or essentially, those who are deemed sophisticated enough to understand the various risks they are subjecting themselves to by undertaking investments such as Hedge funds. Follow the link to find out more about accredited investors.

Now let's say you happen to be an accredited investor, and you wanted to find yourself a good Hedge fund to invest in. Do you know that there is something like 10,000 hedge funds out there at the last count? And let's say you find some stellar hedge fund managed by a hot-shot celebrity and wanted to hop on board. You'll be looking at a slew of management fees, which usually includes a fixed management fee and a performance incentive fee. Usually, the fixed management fee is a percentage charged over the total assets under management, and is assessed regardless of the performance of the fund. As for the performance incentive, it is a percentage cut of the total profit that the manager(s) keep for managing your money to great heights.

To give you a reference, the management fee can run you anywhere from 1 percent to 5 percent per year, and preformance incentives are rather standardized around 10-20 percent, though for top hedge funds, performance incentives up to 30+ percent are not unheard of.

This is where Tipping Monkey comes into the picture. Apparently, a lot of the techniques that hedge funds use are available today to the average investor. For example, if you qualify for a margin account at your discount brokerage, you can get access to techniques such as leverage, short-selling, and derivative instruments such as options. Of course, this is just a small subset of techniques that hedge funds use, but you will be amazed at how powerful and arbitrarily sophisticated these techniques can become, especially when used in combination with each other to create risk-managed positions.

The issue with techniques such as leverage, short-selling and options is that they are very easy to get into, but without the proper practice and experience, they give you more than enough rope to hang yourself. This is why so many people are so against using these types of techniques.

Now it would be utterly irresponsible if we just told you about these techniques and let you hang out there to dry. No, that wouldn't be our style. But what we are here to do is to provide you with possibly the world's first Virtual Hedge Fund Simulator that will help you hone your skills so you can figure out how you can manage your very own portfolio like a hedge fund - without risking real capital until you are ready, and not having to pay hefty management fees or performance incentives. And best of all, you don't have to be an accredited investor to use our service.

If you read this far, and wanted to continue, it would be fair to assume that you have some basic knowledge about investing. To use our service you will need to sign up to be a member. If you are not already a member, that would be a good start. Everything on this site is provided free to our members, and we intend to keep it free to our users indefinitely.

If you are not already familiar with our paper-trading system, you should try making some simple trades to buy and sell some stocks (virtually of course). If you are kind of shy, you can create private portfolios so you can keep your practice trading private. It might be a bit confusing at the beginning, but if you run into problems, you can always send Private Messages to ask other members, or post at the forum under Q&A Forum and someone will answer your questions.

Click here to read about how to convert your own portoflio into a Virtual Hedge Fund and let other members invest in your portfolio (buy shares of your fund). Turn the tables and earn virtual management fees and performance incentives while minding your own "business". This could be one of your most valuable tools to learn the trade of the high-rollers.

Check out our Hedge Fund Glossary, which contains some of the basic terms used in Tipping Monkey.