Derivative

A derivative is a financial instrument whose value is determined by the performance of one or more underlying assets. The main types of derivatives are futures, options, forwards, and swaps. They are typically used for hedging risks or for speculative purposes. Derivatives allow traders to bet on the future price movements of the underlying asset without necessarily owning it. They can be traded on exchanges or over-the-counter (OTC). While derivatives can mitigate risk, they can also contribute to market instability, as evidenced during financial crises when the exposure to derivatives has not been properly managed.