Derivatives market

Do you know how sometimes you trade toys or snacks with your friends? That’s like how people trade stuff in the derivatives market, but instead of snacks or toys, they trade things like stocks, currencies, or even commodities such as oil or gold.

In the derivatives market, people don’t actually trade the stocks or commodities themselves. Instead, they trade what’s called a “derivative” – which is a fancy name for a type of contract that’s based on these things.

These contracts let people bet on the price of something going up or down in the future. For example, let’s say someone wants to bet that the price of oil will go up in a few months. They could buy a derivative contract that says they’ll get paid if the price of oil goes up in that time.

Just like with trading toys or snacks, people buy and sell these contracts to make money. If they think the price of something will go up in the future, they might buy a derivative contract that will pay them if that happens. If they think the price will go down, they might sell a contract and hope to make money if they’re right.

Overall, the derivatives market is a way for people to bet on the future prices of different things, without actually owning those things themselves.