What are derivatives in the context of finance?

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Derivatives in finance are financial instruments whose value is derived from the value of an underlying asset, index, or rate.

Derivatives can be used for hedging against risk, speculating on price movements, or gaining exposure to assets without owning them.
Common types of derivatives include options, futures, forwards, and swaps.
Options give the holder the right, but not the obligation, to buy or sell an asset at a specified price before or on a specified date.
Futures are contracts to buy or sell an asset at a predetermined price on a future date.
Forwards are similar to futures but are customized contracts traded over-the-counter.
Swaps involve exchanging cash flows or other financial instruments based on predetermined conditions.
Derivatives played a significant role in the 2008 financial crisis, particularly in the form of mortgage-backed securities.

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