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The Best Advanced Trading Strategies for Hedge Funds

Hedge funds are traditionally at the forefront of strategic developments in the financial sector. Their operations require a heavy investment into keeping up with current trends, and as a result, the solutions and strategies adopted by the major hedge funds on the market right now are a good indicator for new trend developments.

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 paying close attention to the market, as it’s revealed some exciting trends in that corner of the financial market.

Hedge Funds in 2021: How the Market Currently Looks

One of the most discussed topics with regards to the hedge fund sector in 2021 has been the resurgence of long-short equity. Despite lots of skepticism towards the strategy over the last decade, it’s now established a stable position on the market, and seems to have some significant attracting factors for hedge funds in particular. However, it’s arguable how long this trend will continue for, as there is some speculation that it’s mostly based on recent developments in the market, in particular a shift in focus towards priorities as the pandemic took over.

Hedge funds have also been diversifying their investments more than ever before during this year. This can also be explained by the pandemic in certain capacities, but it’s important to keep an eye on the big picture as well. This trend has been on the horizon for some time already, as the importance of diversifying assets has been growing steadily for all investors. A large portion of funds are now being split across multiple investment fronts. BNP Paribas AM recently published a paper that explores the idea of managing corporate portfolios with a diverse approach.

Popular Trading Strategies and Their Uses

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

  • Long-short equity: as we mentioned above, this is one of the most popular strategies for hedge funds at the moment. Equities are ranked according to their ROI, with the lower-ranking ones being shorted.
  • Swing trading: a traditional trading strategy in which assets are held for a certain period with the expectation that their value would go up. The exact length of time for holding can vary, but is usually in the range of a couple of days. In any case, this is a significantly shorter-term strategy compared to buy-and-hold approaches which rely on much longer holding periods.
  • Market-neutral: this is somewhat the opposite of the long-short strategy, treating both longs and shorts with the same priority when trading. It’s a safer strategy overall, but as can be expected in this case, it also tends to bring in lower returns over time. It’s typically the preferred method for hedge funds that want to stay on the safe side with their trading operations.

Viable Strategies in 2021

Of these strategies, focusing on the long-short equity approach is probably the most viable course of action right now. It’s not just about the sheer performance of this strategy – which is already significant by itself – but there is also a wealth of information about this approach all over the internet right now, with some of it available for free. This can make that kind of approach great for hedge funds that have been focusing on other strategies in the past.

In fact, equity strategies currently amount for nearly half of all approaches used by hedge funds at the moment, which is a strong indicator for their viability in the current market.

Credit strategies and event-driven approaches are also used often at the moment, but their popularity is significantly below that of equity strategies. Research indicates that more and more hedge funds have been transitioning to an equity approach over the last couple of years. The pandemic was likely a major contributing factor to that. But the market as a whole has been moving in a direction that’s made this much more viable over the last five years or so. It makes perfect sense that hedge funds are trying to leverage the beneficial conditions on the current market.

Commonly Used Software Tools and Platforms

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

MetaTrader 5 for hedge funds is another prominent name that’s popping up more and more frequently recently. The platform comes 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 very actively involved in the financial market as well, and they’ve been monitoring the performance of their tool closely to focus on the right updates.


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

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