Derivatives are financial products tied to the value of the underlying asset. As the name itself says, derivatives extract their value from something else and not its own value. Underlying securities can include stocks, currencies, cryptocurrencies, commodities, etc.
Investors opt to use derivatives for different purposes, including to hedge, speculate, or increase exposure to market as derivatives are margin-based.
There are different types of derivatives, including futures, options, forwards, swaps, etc. Futures and options are arguably the most popular derivative products. Although derivatives are essentially created to offset risk, it is advised that only more experienced investors buy and sell derivatives as they involve significant complexity.
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