Only those who hold a risky asset position need Risk management.

Assets like shares, gold, currency, and commodity, etc. that fluctuate in value and the uncertain movements of the price of these investments warrant the use of derivatives.

Many people use derivatives with the expectation of making huge profits. Quite a number of them have become bankrupt due to mindless speculation using derivative instruments.

The misuse of derivative instruments is increasing all over the world. The financial crisis of 2008 that affected the whole world, to a great extent, be attributed to the misuse of derivative instruments.

We see advertisements by advisory firms in newspapers and social media who offer advice on futures and options. They claim that their success rate is above 90%. These firms lure many ignorant investors to engage in derivatives trade.

This can also contribute to the increase in market volatility when people take opposite trading positions.

Along with this, there are occasional scams that cause unexpected fluctuations capable of wiping out the wealth of many people.

Speculation is inherent in all kinds of markets. There are no systems that can control or restrict speculation activity. Actually, it is not necessary to check the speculation. On the other hand, it is actually needed for the markets to function smoothly and provide liquidity in the market.

One must engage in derivative trading only if there is a real purpose. One can use derivatives to protect their portfolio from unpredictable price fluctuation. It can reduce their risk by neutralizing the effect, whereby the loss of one is compensated by the gain in the other. There is also the possibility of substantial gains if there is a favorable movement in price.

If one were to use derivatives as a means to become wealthy overnight, then the risk involved is considerable. The chances of losing everything in no time is very high. Arbitrageurs, spreaders, and hedgers have a purpose for using derivatives. All other amateurs and speculators who engage in derivative trading make or lose money depending on luck.