Costs around a modern crowd-sourced hedge fund
"Your inference in #1 is incorrect.  The million dollars he has contributed is going to be part of the assets of the fund.  This is common practice and is a way for the founder to express confidence that the fund will make money.  He wants you to come up with a model that he can then use to trade those assets.  Presumably he will give you some money if he uses your model and it works. Regarding #2, there are lots of ways of getting data.  Sometimes you can buy it directly from the exchange.  You can also buy from vendors like tickdata.com.  There are lots of such vendors.  Since he makes a big deal about saying it's expensive, I'm assuming he is talking about data at relatively high frequency (not daily, which would be cheap).  Stock data is still not bad.  Complete US data would be a few thousand dollars (maybe 20K at the most).  For someone sitting at home with no capital, that's a lot of money, but for a hedge fund it's nothing. As an institutional investor, your broker will give you a data feed that will provide all prices in real time (but not historically).  If he's been in operation a while, he could have just saved the prices as they came out of the pipe.  I don't think that's the case here, though, based on how young he is and how little money is involved. In short, he paid for some data and has ""encrypted"" it in such a way that he can legally share it for free.  Supposedly his method preserves the structure so that you could write a trading model based on the encrypted data and it would work on real data.  Once you have a good trading model, you sell it to him and he will use it to trade his million dollars and whatever other money he is able to gather."
&gt;Nearly 20 years ago in the book Market Wizards, hedge fund manager Michael Steinhardt said the term hedge funds is a misnomer because most funds don’t hedge, and a new name is almost 2 decades overdue. The more apt titles such as Alt In or absolute return funds haven’t seen any traction, so hedge funds seems here to stay. Besides, consider how misnamed mutual funds are. Vanguard is one of the only mutual fund names that remains a mutual ownership structure, so what’s in a name anyway. "As I stated in my comment, options are futures, but with the twist that you're allowed to say no to the agreed-on transaction; if the market offers you a better deal on whatever you had contracted to buy or sell, you have the option of simply letting it expire. Options therefore are the insurance policy of the free market. You negotiate a future price (actually you usually take what you can get if you're an individual investor; the institutional fund managers get to negotiate because they're moving billions around every day), then you pay the other guy up front for the right of refusal later. How much you pay depends on how likely the person giving you this option is to have to make good on it; if your position looks like a sure thing, an option's going to be very expensive (and if it's such a sure thing, you should just make your move on the spot market; it's thus useful to track futures prices to see where the various big players are predicting that your portfolio will move). A put option, which is an option for you to sell something at a future price, is a hedge against loss of value of your portfolio. You can take one out on any single item in your portfolio, or against a portion or even your entire portfolio. If the stock loses value such that the contract price is better than the market price as of the delivery date of the contract, you execute the option; otherwise, you let it expire. A call option, which is an option to buy something at a future price, is a hedge against rising costs. The rough analog is a ""pre-order"" in retail (but more like a ""holding fee""). They're unusual in portfolio management but can be useful when moving money around in more complex ways. Basically, if you need to guarantee that you will not pay more than a certain per-share price to buy something in the future, you buy a call option. If the spot price as of the delivery date is less than the contract price, you buy from the market and ignore the contract, while if prices have soared, you exercise it and get the lower contract price. Stock options, offered as benefits in many companies, are a specific form of call option with very generous terms for whomever holds them. A swaption, basically a put and a call rolled into one, allows you to trade something for something else. Call it the free market's ""exchange policy"". For a price, if a security you currently hold loses value, you can exchange it for something else that you predicted would become more valuable at the same time. One example might be airline stocks and crude oil; when crude spikes, airline stocks generally suffer, and you can take advantage of this, if it happens, with a swaption to sell your airline stocks for crude oil certificates. There are many such closely-related inverse positions in the market, such as between various currencies, between stocks and commodities (gold is inversely related to pretty much everything else), and even straight-up cash-for-bad-debt arrangements (credit-default swaps, which we heard so much about in 2008)." "Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property? If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is ""too good to not get into"" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio! However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks. In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets. So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon. In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund." "You're correct that the trading costs would be covered by the expense ratio. Just to be clear here, the expense ratio is static and doesn't change very often. It's set in such a way that the fund manager *expects* it to cover *all* of their operational costs. It's not some sort of slider that they move around with their costs.  I'm not familiar with any ETF providers doing agreements which cover rent and equipment (hedge funds do - see ""hedge fund hotels""). ETF providers do routinely enter into agreements with larger institutions that cover stuff like marketing. PowerShares, for a while, outsourced all of the management of the Qs to BNY and was responsible solely for marketing it themselves." "Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka ""target date funds"") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a ""glide-path"" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement.  The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an ""acquired"" expense ratio of less than what you're proposing you'd pay a professional. FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission." The biggest issue with Yahoo Finance is the recent change to the API in May. The data is good quality, includes both dividend/split adjusted and raw prices, but it's much more difficult to pull the data with packages like R quantmod than before.  Google is fine as well, but there are some missing data points and you can't unadjust the prices (or is it that they're all unadjusted and you can't get adjusted? I can't recall). I use Google at home, when I can't pull from Bloomberg directly and when I'm not too concerned with accuracy.  Quandl seems quite good but I haven't tried them. There's also a newer website called www.alphavantage.co, I haven't tried them yet either but their data seems to be pretty good quality from what I've heard. "I know some derivative markets work like this, so maybe similar with futures.  A futures contract commits two parties to a buy/sell of the underlying securities, but with a futures contract you also create leverage because generally the margin you post on your futures contract is not sufficient to pay for the collateral in the underlying contract. The person buying the future is essentially ""borrowing"" money while the person selling the future is essentially ""lending"" money. The future you enter into is generally a short term contract, so a perfectly hedged lender of funds should expect to receive something that approaches the fed funds rate in the US. Today that would be essentially nothing." Typically a hedge fund makes money in two ways: An asset fee of around 2%, and a performance bonus of 20% of the profits.   This causes a huge deterioration of the funds growth, especially when you compound the difference over 20 or 30 years.   Funny enough, they don't have to put in 20% of losses, that's 100% on the pension to bear.