What are the needs of derivatives?

Answer 1

Derivatives serve several key needs in financial markets, primarily for risk management, price discovery, and speculation. They allow investors to hedge against potential losses in underlying assets, enabling more effective risk management strategies. Additionally, derivatives facilitate price discovery by reflecting market expectations and providing insights into future price movements. Lastly, they offer opportunities for speculation, allowing traders to profit from fluctuations in asset prices without directly owning the underlying assets.