Derivative instruments are financial contracts that derive their value from an underlying asset. They are used to manage risk and can be used to speculate on the future price of an asset. They are often used by businesses and investors to hedge against adverse price movements. There are many different types of derivative instruments, including futures, options, swaps, and forwards.

Futures are contracts that obligate the buyer to purchase an asset at a predetermined price at a specified date in the future. Futures are often used by businesses to hedge against price fluctuations in commodities or other assets. For example, a business that produces a commodity may enter into a futures contract to lock in a certain price for the commodity, allowing it to manage its risk of the commodity's price changing in the future.

Options are contracts that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price at a specified date in the future. Options are often used by investors to speculate on the future price of an asset. For example, an investor may buy a call option on a stock, giving them the right to buy the stock at a certain price at a certain date in the future. If the stock price rises, the investor can buy the stock at a lower price than the current market price.

Swaps are contracts between two parties to exchange cash flows based on the performance of an underlying asset. Swaps are often used by businesses to manage their interest rate risk. For example, a business may enter into an interest rate swap to exchange a fixed rate of interest for a floating rate of interest. This allows the business to manage its risk of rising interest rates.

Forwards are contracts that obligate the buyer to purchase an asset at a predetermined price at a specified date in the future. Forwards are similar to futures, but they are not traded on an exchange and are not standardized. Forwards are often used by businesses to manage their foreign exchange risk. For example, a business may enter into a forward contract to exchange one currency for another at a fixed rate, allowing it to manage its risk of changes in foreign exchange rates.

Derivative instruments can be used to manage risk and to speculate on the future price of an asset. However, they can be complex and risky, so it is important to understand the different types of derivative instruments and how they work before investing.