Financial contracts whose value is based on an underlying asset such as Commodities, Stocks, interest rates, or currencies. Common derivatives include Futures, Options, Forwards, and Swaps. Traders and investors use them for hedging risk or speculating on price movements. They allow for leveraged exposure to assets, which can enhance profits but also magnify losses. Derivatives are widely used in both institutional and retail trading environments. However, due to their complexity and volatility, they require a deep understanding of the underlying market. Regulatory compliance and risk management are crucial when trading derivatives.
Example:
An Options contract derives its value from the price movement of the underlying stock.
