A derivative is defined as a contract which derives its value from a separate principal asset like stocks, currencies, commodities, interest rates, bonds, or indexes.
Derivatives can be used by traders to get around their positions and reduce their risk relating to any given trade. For instance, say you manufacture gloves and want to guard your investments from a sudden rise in the price of rubber. Your supplier can offer you a futures contract to deliver a given volume of rubber at a currently agreed price for a particular delivery date in future.
Centralized platforms mainly accept trading of derivatives contracts. However, decentralized markets for derivatives are beginning to develop in DeFi systems.
