A derivative is a contract entered into by two or more parties that derives its value from the performance of an underlying asset. They are usually leveraged instruments; the trader can purchase a large quantity of the underlying assets by paying an initial margin to the stockbroker, which increases their potential risks and rewards. Derivatives can be used on stocks, commodities, currencies, indices, exchange rates, or even interest rates as the underlying asset. Derivatives are used either to speculate or to hedge the position.