Derivatives and its types

Derivatives contribute to market efficiency by improving price discovery and liquidity. Price discovery refers to the process of determining the fair value of an asset based on supply and demand dynamics. In derivative markets, the prices of futures and options contracts reflect market participants' expectations about the future prices of underlying assets, providing valuable information for decision-making. Moreover, derivatives markets enhance liquidity by allowing traders to enter and exit positions easily, without causing significant price changes. High liquidity reduces transaction costs and enables smoother adjustments to new information, benefiting participants in international trade.