What are Derivatives in Forex?

What is a Derivative?

A derivative is a financial contract whose value is linked to an underlying asset, rate, or index. Common forex derivatives include futures, options, and swaps that allow traders to speculate or hedge without exchanging physical currencies immediately.

Why Derivatives Matter in Forex

• Hedging: Corporations use forwards and options to lock in exchange rates.
• Leverage: Derivatives often provide high leverage with relatively low capital.
• Liquidity: Futures markets offer transparent pricing and central clearing.
• Risk transfer: Traders can isolate volatility or interest-rate risk.