Derivatives are financial instruments that derive their value from an underlying asset, such as a stock, commodity, currency, or interest rate. There are several types of derivatives, each with its own characteristics and uses. The most common types of derivatives are forwards, futures, options, and swaps. A forward contract is a customized agreement between two parties to buy or sell an underlying asset at a specified price and date in the future. A futures contract is similar to a forward contract, but it is traded on an exchange and is standardized. An option is a contract that gives the holder the right to buy or sell an underlying asset at a specified price and date. A swap is an agreement between two parties to exchange cash flows based on a specified underlying asset or index.

Derivatives are financial contracts whose value is derived from an underlying asset, such as stocks, currencies, or commodities. There are four main types of derivatives: futures, forwards, options, and swaps. Futures are standardised contracts traded on exchanges to buy or sell an asset at a future date and price. Forwards are similar but traded over-the-counter (OTC), offering customisation. Options give the buyer the right, but not the obligation, to buy or sell the asset at a set price within a specified period. Swaps involve exchanging cash flows or liabilities, commonly used in interest rate or currency markets. These instruments help with hedging risks, speculating on price movements, or gaining access to otherwise hard-to-trade assets or markets.