Derivatives are financial contracts whose value is derived from the performance of an underlying asset, index, or rate. Common types of derivatives include options, futures, and swaps, which are used for hedging risk or speculating on price movements. They play a crucial role in modern finance by allowing investors to manage exposure to various risks. These instruments can be complex, but at their core, they provide a way to bet on the future price of an asset without actually owning it. For example, a futures contract obligates the buyer to purchase, and the seller to sell, an asset at a predetermined price at a specified time in the future.