Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right. Investors use derivatives to hedge a position, increase leverage, or speculate on an asset’s movement. Derivatives can be bought or sold over the counter or on an exchange.
Cash instruments can be defined as the instruments whose value can be determined directly in the markets and securities which are readily transferrable. Derivative instruments derive their value and characteristics from an underlying asset, index, common stock.
