Definition: A hedge fund operates similar to a
mutual fund, but is used & restricted to wealthy individuals and institutions. Hedge funds do not face the same strict regulations that mutual funds do, which allows them to use more aggressive investing strategies including higher leverage, more short selling, alternative investments, arbitrage and derivatives. Hedge funds typically carry performance fees.
Due to the more aggressive nature of hedge funds, they are typically riskier than mutual funds and, due to less regulation, are much more susceptible to fraud.
For more in-depth information on the difference between hedge funds and mutual funds read:
Hedge Funds vs. Mutual Funds 
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