A derivative is a financial instrument whose value is derived from the value of an underlying asset, such as a stock, bond, commodity, or currency.
Derivatives are essentially contracts between two or more parties that specify the conditions under which payments or asset transfers are to be made, depending on the future value or performance of the underlying asset
The underlying asset can be anything that has a value and can be traded in a market.
Financial derivatives are used by investors and traders to hedge against risk, speculate on future price movements, and to gain exposure to assets that they might not otherwise be able to trade directly.
Below are the common types of derivatives: