What are derivatives used for?
Derivatives were originally invented so that farmers could protect their harvests in advance. For instance, in January a farmer could oblige a merchant to purchase his harvest of 2 tonnes of potatoes in October for the previously agreed price of CHF 1,000, even if the harvest might only be worth CHF 800 by then. This kind of forward contract has existed since 1750 BC.
The basic principle has not changed much, even if the concept behind it is much more sophisticated nowadays. The obvious advantage remains protection. Investors use derivatives to protect themselves against fluctuations in prices of certain underlyings.
The other possibility is speculation. Investors speculate on future changes in the prices of underlyings, without buying or selling the underlying itself. Derivatives allow them to rely on the fact that a specific underlying will evolve in a certain direction during a set period of time. Investors can use instruments known as leverage products to gain a disproportionately large profit from small price fluctuations, even with low investment amounts.