Derivative Securities

Derivative securities are financial contracts whose value is based on the price of an underlying asset, such as stocks, commodities, or currencies. Common types include options and futures. They allow investors to hedge against risks or speculate on price changes without actually owning the asset. For example, a farmer might use a futures contract to lock in a price for their crops ahead of harvest, protecting against price drops. While they can provide opportunities for profit, derivative securities also carry risks, as their value can fluctuate significantly based on market conditions.