<human>:  Can you explain what a derivatives market is and how it works?
<bot>: A derivatives market is a marketplace where two parties can enter into an agreement to buy or sell an underlying asset at a predetermined future date and price. The underlying asset may be a security such as a stock or bond, a commodity such as a commodity future, or a currency. Typically, derivatives markets are used for hedging and speculation, and to manage risk. In a derivatives market, parties enter into contracts or agreements with specific terms and conditions that define the amount and timing of the payments or settlement of the underlying asset. These contracts have a predetermined expiration date and can be exchanged or traded, based upon their underlying value. Derivative markets are mainly characterized by leverage, which gives the holder greater gains or losses than the initial investment. As such, traders need to consider the risk before entering into such contracts.