Derivatives

A derivative is a financial contract whose value is based on, or derived from, the price of an underlying asset such as a stock, bond, commodity, or currency, rather than being an ownership stake in that asset itself. Options and futures are the two most common types.

Derivatives can be used to hedge risk, for example locking in a future price to protect against an unfavorable move, or to speculate with leverage, since a derivative contract often costs much less upfront than buying the underlying asset outright while still controlling exposure to its full value.