Major derivative categories include forwards (private bilateral contracts), futures (exchange-traded standardised forwards), options (right but not obligation to transact at a fixed price), swaps (exchange of cash flows, e.g. fixed-for-floating interest), and structured products (bank-issued combinations with engineered payoffs). Notional outstanding globally exceeds USD 700 trillion, far above the size of underlying cash markets.
Used responsibly, derivatives are highly useful. A Swiss exporter can hedge USD receivables with EUR/USD forwards; a homeowner can convert a SARON mortgage to fixed via an interest-rate swap; a fund can hedge equity exposure with index futures during a transition. Used irresponsibly, derivatives blew up Long-Term Capital Management (1998), AIG (2008) and many a retail account on Robinhood.
Retail investors most commonly meet derivatives through structured products (capital-protected notes, autocallables, barrier reverse convertibles) sold by Swiss banks. These bundle a bond, an option short and sometimes a knock-out trigger into a single ISIN. Always look through to the embedded option prices; the issuer's margin can be 2–5% upfront, invisible in the headline yield.
A Swiss exporter expecting USD 1m in 6 months sells a USD/CHF 6-month forward at 0.91 CHF/USD. Whatever the spot in November, she receives CHF 910,000. If spot falls to 0.85, she has saved CHF 60,000; if spot rises to 0.96, she has 'lost' CHF 50,000 in opportunity but hedged the budget.