Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Market Neutral

What it is:

Market neutral refers to an investing strategy that seeks to generate similar returns regardless of the market climate.

How it works (Example):

An investor or fund manager takes a market neutral position by obtaining both long and short positions in carefully chosen securities. This has the effect of tempering or neutralizing gains from price increases while alleviating or even eliminating losses from price declines.

Why it Matters:

A market neutral strategy is good for risk-averse investors who wish to invest in stocks. Despite the benefits of a market neutral portfolio during a market downturn, the combination of long and short positions inhibits the full extent of gains on stocks during a substantial upward trend.