What is the purpose of a derivative contract in the investment process?

A derivative contract is a type of financial instrument that derives its value from a "underlying" security. In Washington, a derivative contract is often used in investment processes to hedge against risk, or to help increase profitability of investments. Derivatives contracts allow investors to transfer some of the risk associated with a particular investment from one party to the other. This is often done through use of options, futures, and forward contracts. Options allow investors to buy or sell an asset at a pre-defined price in the future, while futures allow investors to purchase a security at an agreed-upon price at an agreed-upon date in the future. Forward contracts are similar to futures, but they can also be used to buy or sell a security at an agreed-upon time, but with a different price. The purpose of these derivative contracts is to create an additional layer of protection for investors by allowing them to manage risks associated with certain investments. This can help investors make more informed decisions as to when and how to invest in a given asset or security, as well as how to exit from an investment if needed. Additionally, by using derivative contracts, investors may be able to increase their return on investment by taking advantage of different market conditions.

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What is the purpose of a derivative contract in the investment process?

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