Hedge funds are legal entities that pool the wealth of multiple investors and seek to earn a high return on that wealth through aggressive and research-intensive investment activities. Due to the nature of their operations, hedge funds tend to employ small numbers of highly skilled professionals in the field of finance. Some such professionals are traders.
Base Salary
Hedge fund traders must engage in aggressive and high-impact financial transactions that require them to make quick judgments based on high amounts of research and statistical data. Hedge funds rely heavily on their traders to make good decisions in buying and selling assets. For this reason, they need to hire only the most highly skilled and qualified professionals to these positions -- and pay them a base salary that is high enough to keep them there. As of 2008, according to hedge fund expert Richard Wilson, the average base salary for senior hedge fund traders in the United States was $306,085.
Cash Bonus
On top of the base salary that hedge funds pay their traders, they also pay a cash bonus to give their traders incentives to work efficiently and effectively. In this way, if the trader helps the hedge fund to succeed, the hedge fund rewards the trader. Richard Wilson reports that, as of 2008, the average cash bonus for senior traders was $548,491 per year.
Non-cash Bonus
Performance-based bonuses that hedge funds give to their traders do not necessarily need to consist of cash. For instance, they may come in the form of stocks or other investment instruments. As of 2008, the average value of non-cash bonuses for hedge fund senior traders was $2,235,573.
Advancement
When hedge fund traders prove themselves to be highly competent in their trading activities, they may advance to higher positions in their hedge fund or in the hedge fund industry. Lower-level traders may become senior traders, and senior traders may become hedge fund managers. Hedge fund managers tend to make roughly twice as much as senior traders.
