Financial derivatives are financial instruments that derive their value from an underlying asset, index, or interest rate). They are contracts between two parties that specify conditions, such as the dates, resulting values, and definitions of the underlying variables, under which payments are to be made between the parties). The assets that derivatives are linked to include commodities, stocks, bonds, interest rates, and currencies, but they can also be other derivatives, which adds another layer of complexity to proper valuation).

Here are some key points about financial derivatives:

• Derivatives are one of the three main categories of financial instruments, along with equity (i.e., stocks or shares) and debt (i.e., bonds and mortgages)).
• The oldest example of a derivative in history is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, who made a profit in the exchange).
• Derivatives allow the breakup of ownership and participation in the market value of an asset).
• Financial derivatives are cash flows that are conditioned stochastically and discounted to present value).
• Derivatives are used for a number of purposes, including risk management, hedging, arbitrage between markets, and speculation.
• The most common types of derivatives are futures contracts, forwards, options, and swaps.
• Derivatives are usually leveraged instruments, which increases their potential risks and rewards.
• Derivatives can be a very convenient way to achieve financial goals, such as hedging against exposure to commodities or currency risk.
• Derivatives are often used by margin traders, especially in foreign exchange trading, since it would be incredibly capital-intensive to fund purchases and sales of the actual currencies.

Overall, financial derivatives are complex financial instruments that are used for various purposes, including speculation, hedging, and getting access to additional assets or markets.