Glossary

A derivative is a financial contract whose value is based on (or derived from) an underlying asset, like stocks, bonds, commodities, or currencies.

Derivatives can be used for various purposes, such as hedging risks, speculating on future price movements, or gaining exposure to certain assets without actually owning them.

For example, a farmer might use a derivative called a futures contract to lock in a price for their crops before harvest time, protecting them from potential price fluctuations. 🌾

Fun fact: The derivatives market is enormous! In fact, it's estimated that the notional value of all outstanding derivatives contracts is over $500 trillion. 😲 That's many times larger than the total value of all the stocks and bonds in the world combined!