Derivatives please clarify..

can any one explain in simple terms ..wat does derivatives means..

thanks in advance

Derivatives are financial instruments whose value is derived from the value of something else. They generally take the form of contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time. The main types of derivatives are futures, forwards, options, and swaps.

The main use of derivatives is to reduce risk for one party while offering the potential for a high return (at increased risk) to another. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indexes (such as a stock market index, consumer price index (CPI) see inflation derivatives or even an index of weather conditions, or other derivatives). Their performance can determine both the amount and the timing of the payoffs.

For more info go to http://en.wikipedia.org/wiki/Derivative_(finance)

After reading what Traderji has written just to make things simpler for futures,
they simply provide you with leverege. How?
well you can by Nifty, the smallest contract the newly introduced mini nifty, futures are traded in lots, mininifty has a lot size of 20 which will cost you about 1.2lakhs very roughly now.
So when you buy nifty you dont need to pay 1.2L instead you may a MARGIN, this can change from time to time and currently its 10% so u end up paying 12,000 controlling 1.2L worth of shares
so every 10 points move in your favour is 200 rupee gain. But remember its a double edged sword. PAPER TRADE FOR A MONTH atleast and get some exposure in equity before trying the above

MJ