Crypto and derivatives · updated October 21, 2026
What are financial derivatives
A derivative is a contract whose price comes from the price of something else, called the underlying asset: a stock, an index, a currency, oil or Bitcoin. The best known are options, futures, CFDs and swaps.
How it works
You do not buy the asset itself, but a contract tied to it. Some derivatives give you the right to buy or sell at a set price (options), others oblige you to (futures). Many use leverage: you put down a small amount and gain or lose as if you had invested a much larger one. They are used for protection against falls (hedging) or for speculation.
Worth knowing
Companies mostly use derivatives as protection: an airline locks in its fuel price, an exporter its exchange rate.
When derivatives can fool you
Leverage: a derivative can lose more than you put in, and with some types even more than you have in your account. Expiry date: many expire, and if you are right too late, you lose anyway. Brokers' own numbers: in the EU, CFD brokers must publish how many clients lose money; it is usually more than 70%.
Related terms
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Questions about derivatives
Are derivatives suitable for beginners?
Usually not. To start with, stocks and ETFs are simpler and cannot make you lose more than you invested.
Why are they called derivatives?
Because their price derives from, meaning comes from, the price of another asset.
These explanations are for information only. They are not a recommendation to buy or sell.
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