Hey everyone,
I keep hearing about options, futures, and swaps being called “derivatives.” Can someone explain in simple terms what a derivative is and why people use them—hedging, trading, or both?
A financial derivative is an agreement whose price is based on some underlying asset such as stocks, commodities, currencies or interest rates. The frequently used ones are futures, options and swaps. Derivatives are used by investors to hedge the risk, speculate the price movements, or leverage their positions to expose themselves more with less capital.
A derivative is a financial contract whose value is derived from an underlying asset, like stocks, bonds, currencies, or commodities. Their price fluctuates in relation to the underlying asset, and they are used for speculation or risk hedging.
A derivative in finance is a contract whose value is based on an underlying asset like stocks, commodities, or currencies. Investors use derivatives to hedge risks, speculate on price movements, or enhance portfolio strategies without owning the actual asset.
In finance, a derivative is a contract whose value is based on the price of an underlying asset, such as stocks, bonds, commodities, or currencies. Common types include options, futures, and swaps, and they are used for hedging risk or speculation.
