It is a contract in the form of instrument between two parties and specifies conditions (especially the dates, resulting values

of the underlying variables, and notional amounts) under which payments, or payoffs, are to be made between the parties., these have special legal exemptions under US law and the laws of most other developed countries that make them a attractive legal form through which credit can be extended. Derivatives are afforded with strong creditor protection counterparties, due to their complexity and lack of transparency, can cause capital markets to underprice credit risk. This can contribute to credit booms, and increase systemic risks. One of the oldest derivatives is rice futures, Derivatives can be broadly categorized by the relationship between the underlying asset and the derivative (such as forward, option, swap); the type of underlying asset (such as equity derivatives, foreign exchange derivatives, interest rate derivatives,

commodity derivatives, or credit derivatives); they are traded in the markets (such as exchange-traded or over-the-counter); and their pay-off profile. Derivatives are used to speculate purposes ("bets") or to hedge ("insurance"). For example, a speculator may sell deep in-the-money naked calls on a stock, expecting the stock price to plummet, but exposing himself to potentially unlimited losses. Very commonly, companies buy currency forwards in order to limit losses due to fluctuations in the exchange rate of two currencies. They do not have their own worth and derive their value from the claim they give to their owners to own some other financial assets or security.