Derivatives

Derivatives are contracts whose value is based on the price of another asset, such as stocks, commodities, or currencies. Some derivatives—like forward contracts and futures—require both parties to complete a trade in the future; these are known as "lock" products. Others, called "option" products, such as options contracts, let the buyer decide whether or not to go through with the transaction.

Traders often use derivatives either to increase potential returns (leverage) or to protect against losses (hedging). While derivatives can be bought and sold in secondary markets, they usually aren’t as easy to trade quickly as the assets they’re based on, due to lower liquidity.