Derivatives Explained: What They Are, How They Work, and How to Trade on Kyvoo
5 minReading time
Published Oct 11, 2025
Derivatives Explained: What They Are, How They Work, and How to Trade on Kyvoo
Derivatives are one of the most interesting and complex areas of the financial market. They allow trading on the future value of assets without the need to own them directly. For investors and traders, they can be powerful tools for hedging or speculation on price movements.
In this article, you will understand what derivatives are, the most common types, how they are traded, their advantages, disadvantages, and how to use them strategically on Kyvoo.
What Are Derivatives?
The term derivatives refers to financial instruments whose value derives from the performance of underlying assets such as stocks, bonds, commodities, currencies, interest rates, or market indices.
In practice, they are contracts between two or more parties based on the future price of an asset. The main objective is to manage risks, but they can also be used to leverage gains in speculative trades.
Open your free account on Kyvoo
And start learning about derivatives in practice
Types of Derivatives
The main types of derivatives are futures, options, swaps, and forwards. Each has its own characteristics.
Futures
These are standardized contracts to buy or sell an asset at a future date at a defined price.
Traded on exchanges, with high liquidity.
Used for both hedging and speculation.
Example: an agricultural producer securing the price of soybeans months before harvest.
Tip: Keep an eye on your margin to avoid forced liquidation of your position.
Options
They give the holder the right, but not the obligation, to buy or sell an asset at a specific price within a specified time frame.
Call: right to buy.
Put: right to sell.
Used for hedging, income generation, and speculation.
Swaps
Contracts in which two parties exchange financial flows for a period of time.
Most common: interest rate swaps (fixed rates exchanged for floating).
Widely used by institutions to manage currency or interest rate exposure.
Forwards (Forward Contracts)
Similar to futures, but they are not standardized and not traded on exchanges.
Customized contracts between two parties.
More common in currency and commodity markets.
Because they are customized, they are primarily used by institutional investors.
How Are Derivatives Traded?
There are two main environments:
On Exchange: standardized contracts (futures and options). They provide transparency, liquidity, and lower counterparty risk.
Over-the-Counter (OTC): private contracts (swaps and forwards), more flexible, but with higher counterparty risk.
Practical Tip: use the demo account from Kyvoo to understand how derivatives work before trading with real capital.
Derivatives Explained: What They Are, How They Work, and How to Trade on Kyvoo
Derivatives are one of the most interesting and complex areas of the financial market. They allow trading on the future value of assets without the need to own them directly. For investors and traders, they can be powerful tools for hedging or speculation on price movements.
In this article, you will understand what derivatives are, the most common types, how they are traded, their advantages, disadvantages, and how to use them strategically on Kyvoo.
What Are Derivatives?
The term derivatives refers to financial instruments whose value derives from the performance of underlying assets such as stocks, bonds, commodities, currencies, interest rates, or market indices.
In practice, they are contracts between two or more parties based on the future price of an asset. The main objective is to manage risks, but they can also be used to leverage gains in speculative trades.
Open your free account on Kyvoo
And start learning about derivatives in practice
Types of Derivatives
The main types of derivatives are futures, options, swaps, and forwards. Each has its own characteristics.
Futures
These are standardized contracts to buy or sell an asset at a future date at a defined price.
Traded on exchanges, with high liquidity.
Used for both hedging and speculation.
Example: an agricultural producer securing the price of soybeans months before harvest.
Tip: Keep an eye on your margin to avoid forced liquidation of your position.
Options
They give the holder the right, but not the obligation, to buy or sell an asset at a specific price within a specified time frame.
Call: right to buy.
Put: right to sell.
Used for hedging, income generation, and speculation.
Swaps
Contracts in which two parties exchange financial flows for a period of time.
Most common: interest rate swaps (fixed rates exchanged for floating).
Widely used by institutions to manage currency or interest rate exposure.
Forwards (Forward Contracts)
Similar to futures, but they are not standardized and not traded on exchanges.
Customized contracts between two parties.
More common in currency and commodity markets.
Because they are customized, they are primarily used by institutional investors.
How Are Derivatives Traded?
There are two main environments:
On Exchange: standardized contracts (futures and options). They provide transparency, liquidity, and lower counterparty risk.
Over-the-Counter (OTC): private contracts (swaps and forwards), more flexible, but with higher counterparty risk.
Practical Tip: use the demo account from Kyvoo to understand how derivatives work before trading with real capital.
Advantages and Disadvantages of Derivatives
Advantages
Risk management: protection against price fluctuations.
Price discovery: help in pricing assets more efficiently.
Lower costs: allow adjustment of positions without liquidating main assets.
Disadvantages
Complexity: require in-depth study to be used correctly.
Margin requirement: may require significant additional contributions.
Operational risk: some contracts still involve physical delivery of assets, which requires attention.
Final Considerations
The derivatives market was born out of the need to protect producers and consumers against price risks, but today it is also used by speculators seeking quick gains.
Despite the complexity, derivatives are not riskier than other assets when used with discipline and knowledge. However, they involve leverage, which increases both profits and losses.
Before trading, study the mechanisms well and practice in a simulated environment.
Open your account with Kyvoo and explore the derivatives market safely
Final Considerations
The derivatives market was born out of the need to protect producers and consumers against price risks, but today it is also used by speculators seeking quick gains.
Despite the complexity, derivatives are not riskier than other assets when used with discipline and knowledge. However, they involve leverage, which increases both profits and losses.
Before trading, study the mechanisms well and practice in a simulated environment.
Open your account with Kyvoo and explore the derivatives market safely
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Derivatives Explained: What They Are, How They Work, and How to Trade on Kyvoo
Derivatives are one of the most interesting and complex areas of the financial market. They allow trading on the future value of assets without the need to own them directly. For investors and traders, they can be powerful tools for hedging or speculation on price movements.
In this article, you will understand what derivatives are, the most common types, how they are traded, their advantages, disadvantages, and how to use them strategically on Kyvoo.
What Are Derivatives?
The term derivatives refers to financial instruments whose value derives from the performance of underlying assets such as stocks, bonds, commodities, currencies, interest rates, or market indices.
In practice, they are contracts between two or more parties based on the future price of an asset. The main objective is to manage risks, but they can also be used to leverage gains in speculative trades.
Open your free account on Kyvoo
And start learning about derivatives in practice
Types of Derivatives
The main types of derivatives are futures, options, swaps, and forwards. Each has its own characteristics.
Futures
These are standardized contracts to buy or sell an asset at a future date at a defined price.
Traded on exchanges, with high liquidity.
Used for both hedging and speculation.
Example: an agricultural producer securing the price of soybeans months before harvest.
Tip: Keep an eye on your margin to avoid forced liquidation of your position.
Options
They give the holder the right, but not the obligation, to buy or sell an asset at a specific price within a specified time frame.
Call: right to buy.
Put: right to sell.
Used for hedging, income generation, and speculation.
Swaps
Contracts in which two parties exchange financial flows for a period of time.
Most common: interest rate swaps (fixed rates exchanged for floating).
Widely used by institutions to manage currency or interest rate exposure.
Forwards (Forward Contracts)
Similar to futures, but they are not standardized and not traded on exchanges.
Customized contracts between two parties.
More common in currency and commodity markets.
Because they are customized, they are primarily used by institutional investors.
How Are Derivatives Traded?
There are two main environments:
On Exchange: standardized contracts (futures and options). They provide transparency, liquidity, and lower counterparty risk.
Over-the-Counter (OTC): private contracts (swaps and forwards), more flexible, but with higher counterparty risk.
Practical Tip: use the demo account from Kyvoo to understand how derivatives work before trading with real capital.
Advantages and Disadvantages of Derivatives
Advantages
Risk management: protection against price fluctuations.
Price discovery: help in pricing assets more efficiently.
Lower costs: allow adjustment of positions without liquidating main assets.
Disadvantages
Complexity: require in-depth study to be used correctly.
Margin requirement: may require significant additional contributions.
Operational risk: some contracts still involve physical delivery of assets, which requires attention.
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Final Considerations
The derivatives market was born out of the need to protect producers and consumers against price risks, but today it is also used by speculators seeking quick gains.
Despite the complexity, derivatives are not riskier than other assets when used with discipline and knowledge. However, they involve leverage, which increases both profits and losses.
Before trading, study the mechanisms well and practice in a simulated environment.
Open your account with Kyvoo and explore the derivatives market safely