Hedge funds are non-traditional investment funds, which typically have a low level of regulation. Once little-known types of financial investments, they are now important players in the financial market because of their size and the amount of assets under management. Due to the low regulation, an ever increasing volume of assets under management and mystically high returns they have become one of the most besieged financial institutions during the last 20 years. The article examines the risks posed by low levels of regulation of hedge funds and tries to find alternative options for reduction of the risk. For a better understanding of the hedge fund industry, as well as the risks, which are partly a reflection of low regulation, there is, at the beginning, a detailed presentation of those characteristics of hedge funds, which represent the greatest danger – transparency, financial leverage, domicile and fraudulent practices. Their potential impact on the entire financial market is illustrated with some of the most resounding financial crises in recent years, in which hedge funds had an active role. The central aim of the article is to examine the types of risks posed by hedge funds and possible solutions for and reductions of these risks in the form of regulatory interventions.