Not necessarily Howard Dicus Pacific Business News Banks have collapsed and governments have lost their good credit ratings over investments in contracts called derivatives, but Hawaii experts on the subject say today's derivatives market has become a place where many organizations actually use such contracts to reduce their risk.
People think they are extremely risky.
And they certainly can be. But it's actually possible to use derivatives to reduce your risk in the stock market. The thing to keep in mind is that derivatives alter risk and return. You can go for high returns at the cost of high risk, but a lot of companies use them to do just the opposite. A derivative is a contract whose value is derived from the value of some other thing, whether it's a share of stock or a bushel of wheat or an ounce of gold.