Financial Derivatives 101

Investing has grown more complicated in recent decades, with the creation of numerous derivative instruments offering new ways to manage money. The use of derivatives to hedge risk and improve returns has been around for generations, particularly in the farming industry, where one party to a contract agrees to sell goods or livestock to a counter-party who agrees to buy those goods or livestock at a specific price on a specific date. This contractual approach was revolutionary when first introduced, replacing the simple handshake.