What are Derivatives in Finance

Derivatives are financial instruments whose value is derived from underlying financial assets such as stocks, bonds, commodities, currencies, or interest rates. Derivatives are used to manage risk, speculate on price movements, and generate profits. 

The two main types of derivatives are forwards and futures. Forwards are contracts between two parties to buy or sell an asset at a specified price on a specified future date. Futures are similar to forwards, but they are standardized contracts traded on an exchange. 

Options are another type of derivative. Options are financial contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a specified price on or before a certain date. 

Derivatives can be used for hedging purposes, to reduce the risk of losses. For example, a company may use currency derivatives to hedge against currency fluctuations. Derivatives can also be used for speculative purposes, to capitalize on expected price movements.