Derivatives are financial instruments that derive their value from an underlying asset, such as a stock, bond, commodity, or currency. They are used by investors to hedge risk, speculate on price movements, and generate income.
There are many different types of derivatives, but the most common are futures, options, and swaps. Futures are contracts to buy or sell an asset at a set price on a future date. Options give the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date. Swaps are contracts to exchange cash flows between two parties.
