What are the functions of financial derivatives

With the continuous development of the financial industry, a series of financial derivatives such as futures, options, etc., have been developed on the basis of traditional financial products such as stocks and bonds. While providing investors with richer choices, financial derivatives also play a market role that cannot be ignored. What are the functions of financial derivatives? 1 Risk management function. Another name for the risk management function is the hedging function. Risk management is the original purpose for which the pioneers in the financial field created financial derivatives. Hedgers who want to avoid risk transfer risk through financial derivatives to speculators who are willing to take risk for the purpose of risk transfer.2 Price discovery function. The transaction costs of financial derivatives are often lower than those of traditional financial products, and the speed of response has a more obvious advantage. Therefore, when investors' expectations for future prices change because of economic policies or other factors, they will prioritize the corresponding response in the trading of financial derivatives. So the price movement of financial derivatives, often used to determine the price trend of financial products, this is the price discovery function of financial derivatives. The birth of financial derivatives is a crucial innovation in the financial field and a reflection of the wisdom of financial industry practitioners. In addition to the above main functions, financial derivatives also play an irreplaceable role in improving market efficiency, speculation, and reducing transaction costs.