Derivatives are financial instruments whose value is dependent on, or derived from, the value of an underlying asset. The underlying asset can be a stock, bond, commodity, currency, interest rate, or market index. Derivatives are used for various purposes, including hedging risk, speculating on price movements, and gaining access to otherwise hard-to-trade assets or markets.
The modern derivatives market began to take shape in the 19th century with the establishment of organized exchanges. The Chicago Board of Trade (CBOT), founded in 1848, introduced standardized futures contracts for agricultural commodities. This innovation laid the groundwork for the development of modern futures and options markets.