Derivatives are financial contracts whose value is "derived" from an underlying asset, index, or rate. They do not represent ownership of the underlying asset itself, but rather an agreement to exchange payments or assets based on future events. The primary purpose of derivatives is to manage risk (hedging) or to speculate on price movements of the underlying asset. Common types include futures, options, forwards, and swaps. Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a specified future date. Options give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price before or on a certain date. Forwards are similar to futures but are customized, over-the-counter agreements. Swaps involve exchanging cash flows or liabilities based on different financial instruments. Derivatives offer significant leverage, meaning a small price movement in the underlying asset can lead to a large gain or loss for the derivative holder. While they provide powerful tools for risk management and speculation, their complexity and inherent leverage mean they also carry substantial risks and are generally suited for experienced investors.