Derivatives are financial contracts between parties that derive their value from an underlying asset, such as stocks, bonds, commodities, currencies, or interest rates. Primarily used for hedging risk or speculation, these instruments are traded on exchanges or over-the-counter (OTC). Key types include futures, options, forwards, and swaps.

Types of Derivatives
Futures: Standardized contracts traded on an exchange to buy or sell an asset at a set price on a future date.
Forwards: Customized contracts between two parties, similar to futures but traded OTC.
Options: Contracts that give the buyer the right, but not the obligation, to buy/sell an asset at a specific price.
Swaps: Agreements to exchange cash flows, commonly used for interest rate or currency risks.