According to the definition of financial circles, financial derivatives are bilateral contracts between traders to exchange cash flow or transfer risks. They give the holders some obligations or rights to buy and sell a financial asset, the value of which is determined by the price of the financial assets they trade, usually including futures contracts, option contracts, forward contracts and swap contracts.

Derivative contracts are generally defined as private contracts derived from some basic assets, interest rates and indexes, such as stocks, bonds or commodities. The simplest example is the foreign exchange forward contract. This foreign exchange forward contract is a commitment contract to buy a certain amount of foreign exchange at a certain price at a certain date in the future. Initially, the value of this contract is zero (if the price is stable), but as the exchange rate changes in a certain period of time, there will be gains or losses. The cash position of foreign exchange can be completely copied by the position of a short-term bill of exchange and the long position of a forward contract.