Derivatives are securities whose value is based on the value of another commodity or financial instrument — commodities like wheat or copper. Swaps, a special kind of derivative, are used by investors to trade one kind of risk for another — a fixed-interest rate for a variable rate, for instance.
Another Example can be :
A derivative is a financial instrument that derives or gets it value from some real good or stock. It is in its most basic form simply a contract between two parties to exchange value based on the action of a real good or service. Typically, the seller receives money in exchange for an agreement to purchase or sell some good or service at some specified future date.
Derivatives offer the same sort of leverage or multiplication. Multiplication can go for Profit or Loss . For a small amount of money, the investor can control a much larger value of company stock or commodities. The purchase of Derivative if positive can give huge profit .