Hedge funds come in a variety of shapes and sizes, each attempting to profit from specific market conditions and trading opportunities. They are sometimes listed according to the investment approach they use when trading the market.

The main categories of hedge funds, according to this classification, are:

Long-short funds

The most common and conventional form of hedge fund is long-short funds. Long-short funds seek to buy securities that outperform the market while selling securities that underperform the market. Following the formation of long-short funds, other hedge fund forms have arisen that seek to take advantage of other investment strategies as well.

Event-driven funds

Event-driven funds, as their name suggests, try to profit from a variety of market events that can affect the price of stocks, such as political crises, natural disasters, macroeconomic launches, and so on.

Macro funds

Another common form of hedge fund is macro funds, which seek to benefit from market volatility caused by macroeconomic events. To mitigate market risk and improve overall profitability, this type of fund invests in a variety of capital markets, such as stocks, bonds, and commodities.

Emerging-market Funds

Emerging-market funds invest in securities issued by developed countries with low per capita income. Since emerging market economies are notoriously unpredictable, those funds are typically high-risk, but high-return investments.

Fixed-income arbitrage funds

Fixed-income arbitrage funds try to profit from price differentials between fixed-income instruments like bonds, Treasury bills, and commercial papers. Fixed-income arbitrage funds aim to purchase these securities at a cheaper price on one exchange and sell them at a higher price on another because they can be exchanged on multiple exchanges.