Derivative is a product whose value is derived from the value of one or more basic variables called bases (underlying asset , index or reference rate ) , in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset.
Through the use of derivatives products, it is possible to partially or fully transfer price risks by locking in asset prices. By locking in asset prices, derivative products minimize the impact of fluctuations in asset price on the profitability and cash flow situation of risk averse investors.
The most commonly used derivatives contracts on the exchanges are future and options contracts.