For some investors, the term "derivatives" may have a negative connotation because of the role these complex instruments played in recent financial disasters. But many institutional investors, banks, governments, hedge funds, and corporations rely on derivatives as a way to manage risk, pursue hedging strategies, and achieve other financial objectives. Likewise, mutual funds and exchange-traded funds are increasingly using derivatives as part of their investment strategies.
A full discussion of how derivatives work could fill a book, but for investors curious to learn more about what they are and how some funds use them, here's a primer.
Defining Derivatives >>