The best advanced trading strategies for hedge funds

Hedge funds have traditionally been at the forefront of strategic developments in the financial sector. Their operations require a significant investment to keep up with current trends, and therefore the solutions and strategies adopted by the major hedge funds in the market at the moment are a good indicator of the development of new trends.

Trading strategies – and the technical solutions used to implement them – regularly fluctuate in popularity. 2021 is shaping up to be an interesting year for those who pay close attention to the market, as it has revealed some exciting trends in this corner of the financial market.

Hedge funds in 2021: what the market looks like today

One of the most discussed topics regarding the hedge fund industry in 2021 has been the resurgence of long-short stocks. Despite much skepticism towards the strategy over the past decade, it has now established a stable position in the market and appears to have significant pull factors for hedge funds in particular. However, it is safe to say how long this trend will continue, as there is speculation that it is mainly based on recent market developments, in particular a shift in focus on priorities as the pandemic has taken hold. above.

Hedge funds have also diversified their investments more than ever during this year. It can also be explained by the pandemic in some respects, but it is also important to keep an eye on the big picture. This trend has been on the horizon for some time now, as the importance of asset diversification continues to grow for all investors. Much of the funds are now spread across multiple investment fronts. BNP Paribas AM recently published an article which explores the idea of ​​managing corporate portfolios with a diversified approach.

Popular trading strategies and their uses

There are many trading strategies currently in use in various sectors of finance, but several of them have managed to rise to the top in the context of hedge funds in particular. It’s a good idea for hedge fund managers to explore the viability of any currently popular strategies, including ones they don’t immediately see the usefulness of.

  • Long-short actions: As we mentioned above, this is one of the most popular strategies for hedge funds right now. Stocks are ranked based on their return on investment, with lower-ranked stocks being shorted.
  • Swing trading: a traditional trading strategy in which assets are held for a period of time with the expectation that their value increases. The exact length of detention may vary, but is usually in the order of a few days. Either way, this is a shorter-term strategy compared to buying and holding approaches that rely on much longer holding periods.
  • Neutral market: it is somewhat the opposite of the long-short strategy, treating both long and short with the same priority when trading. This is a safer overall strategy, but as you would expect in this case, it also tends to generate lower returns over time. This is generally the preferred method of hedge funds who wish to remain cautious in their trading operations.

Viable strategies in 2021

Among these strategies, focusing on the long-short equity approach is probably the most viable course of action at the moment. It’s not just about the sheer performance of this strategy – which is already important in itself – but there is also a wealth of information about this approach all over the internet right now, some of which is available for free. This can make this type of approach ideal for hedge funds that have focused on other strategies in the past.

Indeed, the current equity strategies amount for almost half of all approaches currently used by hedge funds, which is a strong indicator of their viability in the current market.

Credit strategies and event-driven approaches are also often used these days, but their popularity is significantly lower than that of equity strategies. Research indicates that more and more hedge funds have taken an equity approach over the past two years. The pandemic was probably a major contributing factor. But the market as a whole has moved in a direction that has made this much more viable over the past five years or so. It makes perfect sense that hedge funds try to take advantage of the favorable conditions in the current market.

Commonly used software tools and platforms

Bloomberg remains one of the market leaders in the financial sector, including hedge funds. It is used by a large number of organizations in the market despite its age, and the tool continues to receive active updates even today. It is part of a large market that continues to grow as advanced analytical tools have been in high demand over the past decade.

MetaTrader 5 for hedge funds is another prominent name that is popping up more and more lately. The platform is packed with many features that make it an attractive choice for hedge funds (and traders in general). Scalability and customization are among its main selling points, with various options to extend the usefulness of the platform with MQL5, Python, and SQL. The platform is also known for its strong backtesting capabilities. The company behind MetaTrader 5 is also very actively involved in the financial market, and it closely monitors the performance of its tool to focus on the right updates.


Choosing the right approach is more important than ever for hedge funds, as the market is in a special state with many developments active on many fronts. Strategies that were considered viable not so long ago are now out of favor and are being replaced by others that were not as important in the past. The same is true on the software side, with many solutions coming and going, while others have managed to establish a solid presence in the market. It is crucial to carefully explore all of these options and understand the ideal approach for a hedge fund with similar properties and performance.

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