Derivatives trading involves buying and selling financial contracts whose value is derived from an underlying asset, such as stocks, bonds, or commodities. These contracts include options and futures, allowing traders to speculate on price movements or hedge against potential losses in their investments. Traders use derivatives to manage risk or enhance returns. For example, a futures contract allows a trader to agree on a price for an asset at a future date, while an option gives the right, but not the obligation, to buy or sell an asset at a predetermined price.