A derivative is a financial contract with a value that is derived from an underlying asset. Derivatives have no direct value in and of themselves -- their value is based on the expected price movements of their underlying asset.
Why would a trader use derivatives?
There are 4 benefits of trading derivatives:
Hedging and better risk management
Low Transaction costs
Exposure: Traders can bet against an asset’s performance without owning it
Leverage: Traders can enter positions that are larger than their account balance