Financial Derivatives

Financial derivatives are contracts whose value is based on the performance of an underlying asset, such as stocks, bonds, commodities, or currencies. They allow investors to speculate on price movements or to hedge against risks. Common types include options (which give the right to buy or sell an asset at a set price) and futures (contracts to buy or sell an asset at a future date for a predetermined price). Derivatives can enhance returns but also involve significant risks, as their value can fluctuate widely based on market conditions.