The main difference between a hedge fund and a "normal" managed fund is that a hedge fund is usually free to pursue whatever strategy they see fit to use. Normal managed funds have to abide by rules that specify the largest position they can take in a single stock, the minimum number of stocks they should own, limits on leverage and use of derivatives and many other things.  In the US for instance normal mutual funds are generally not allowed, by law, to short sell stocks.

The advantage of hedge funds is that a hedge fund is rarely limited by any of these rules. Hedge funds generally make their own rules up, they might decide not to use certain derivatives and they might decide not to use leverage and they might make up rules about their position sizes, but this is the fund's own rule - not those of a regulator.

Thus hedge funds are usually free to pursue any strategy they want to use. They might, for example, use exotic derivatives to limit risk in one area or gain a speculative profit in others, they might short sell freely to take advantage of a falling market and they could even perhaps get involved in takeovers and other corporate maneuvers.

This is of course a double edged sword, having the freedom to take virtually any position they want to means not only that the manager has the opportunity to make or preserve money in a myriad of ways, but also of course to lose money in a myriad of ways. One needs only look to 1929 and 1987 to see the number of traders that went bankrupt because they went short stocks a few months too early, timing markets is a hazardous exercise.