Market-neutral investment strategies are not about investing in financial products that are safe from the fluctuations affecting the market. A market-neutral strategy is about creating a hedge against the factors affecting the market by adopting different positions.
This approach is focused on generating absolute returns on the long-term instead of relative returns or immediate profits. Using market-neutral investment strategies is ideal for investors who have some experience with stock picking or who can benefit from the recommendations of a qualified investment advisor or fund manager.
There are a few concepts you should be familiar with to gain a better understanding of market-neutral investment strategies:
1. A long position refers to the purchase of a commodity motivated by the belief it will gain value.
2. A short position refers to the sale of a commodity motivated by the belief it will lose value.
3. A market-neutral investment involves a long and a short position so that gains and losses can offset each other regardless of how the market moves.