ELI5: Explain Like I'm 5

futures and derivatives

Futures and derivatives are special investments that people can buy when they want to make money. When you buy a derivative, you're agreeing to buy or sell something at a certain price on a certain date in the future. Futures are like a form of insurance – they help protect you against losses if the price of something changes. For example, say you own a business and you want to make sure that you always know how much you’ll pay for things like gasoline or wheat. You could buy a derivative or a futures contract, which means you’re saying that no matter how expensive the gas or wheat gets, you’ll pay the price you agreed to in the contract on the agreed upon date. That way, you know how much you’ll spend and you can plan accordingly.