Stock index funds, for instance, now let an investor buy what amounts to a share of the entire stock market not an easy thing to do on one's own. Just as they intermediate between savers and investors, financial mar- kets also spread the costs of risk. Derivatives come in many forms. Two of the simplest, as well as the earliest, are options and futures contracts. Options give the buyer the right to buy or sell a commodity, and more recently a financial instru- ment, at a fixed price.
Futures contracts perform similar price-locking functions.
The common feature of both instruments is that they allow those who are worried about price movements to transfer their worry and their risk to someone else. More exotic forms of derivatives currency swaps, interest rate swaps, and so forth do the same thing, but for differ- ent types of risk. It is sometimes said that these financial instruments, or intermediar- ies, only move risk around, without eliminating it. That is true, but it also misses a crucial point. Markets and institutions allow those who wish to avoid risk to do so, while enabling those most willing and able to bear risk to assume it.