Derivatives

Derivatives are financial instruments derived from an underlying security (known as the underlying cash market). There are three main types of derivative: futures (forwards), options, and swaps (including credit derivatives).

The main use of derivatives is to reduce risk for one party. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indexes (such as a stock market index, consumer price index (CPI), or even an index of weather conditions).