Cash Neutral

AAA

DEFINITION of 'Cash Neutral'

An investment strategy strategy that requires no net cash in order to enter perform the transaction. In general, cash neutral strategies require simultaneous buying and (short) selling of instruments. These strategies are popular with hedge funds, since they do not require money to be tied up in order to earn returns.

INVESTOPEDIA EXPLAINS 'Cash Neutral'

The most common cash neutral technique is the "market neutral" strategy. In this strategy, overvalued instruments are sold short while undervalued instruments are bought. Investable funds are split approximately 50% into short selling and buying so that, all else being equal, the portfolio value should not fluctuate based on overall market movements. Since investable funds are split equally, the cash provided from short selling offsets the cash required to buy instruments. Thus, there is no net cash flow from this initiating this strategy.

RELATED TERMS
  1. Aggressive Investment Strategy

    A portfolio management strategy that attempts to maximize returns ...
  2. Market Neutral Fund

    An aggressive type of mutual fund that aims to deliver superior ...
  3. 130/30 Mutual Fund

    A mutual fund that has long positions and short positions in ...
  4. Equity Market Neutral

    A hedge fund strategy that seeks to exploit differences in stock ...
  5. Hedge Fund

    An aggressively managed portfolio of investments that uses advanced ...
  6. Market Neutral

    A strategy undertaken by an investor or an investment manager ...
Related Articles
  1. Investment Strategies For Volatile Markets
    Investing Basics

    Investment Strategies For Volatile Markets

  2. The Iron Condor
    Options & Futures

    The Iron Condor

  3. Getting Positive Results With Market-Neutral ...
    Mutual Funds & ETFs

    Getting Positive Results With Market-Neutral ...

  4. Hedge Funds Go Retail
    Options & Futures

    Hedge Funds Go Retail

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center