Derivatives are financial instruments whose value is derived from an underlying asset such as stocks, indices, commodities, or currencies. The two most common derivative instruments are Futures and Options. Derivatives are used for hedging risk, speculation, and arbitrage. Futures contracts obligate the buyer to purchase, and the seller to sell, an asset at a predetermined future date and price. Options contracts give the right, but not the obligation, to buy or sell the asset at a specific price within a set period. Derivatives trading occurs on platforms like NSE’s F&O segment and requires margin money. These instruments magnify both profits and losses, so a strong understanding is essential. Institutional investors use derivatives to hedge exposure, while retail traders use them for short-term speculation. While derivatives are powerful tools, lack of discipline can lead to large losses. Proper risk management, understanding of pricing models, and regulatory framework knowledge are essential before trading.