What do you mean by Derivatives?

It is a financial instrument as it has monetary value. Derivative comes out of the word Derive, which means to find or to predict.
Over here, we are deriving or predicting the price of a contract based on an underlying asset (example Reliance share)
Example, If the share price of Reliance is Rs. 2500 today and if I am buying it, there is nothing for me to derive here. This buy and sell is called Spot transaction.
However, if I want to buy it as some future date, say for example, after 3 months. I would like to derive/predict the price of Reliance based on quarterly result, monetary policies and other macro economic conditions.
and I am predicting the price to be Rs. 2700 in another 3 months and agreeing to buy at Rs. 2700 after 3months. It means, I have derived the price of the agreement to be Rs. 2700 based on the underlying assets that is Reliance shares in this case.
Derivatives contract can take place Over the Counter (OTC) or Exchange Traded. OTC Derivatives are classified into Forward and Swaps. Exchanged Traded Derivatives are classified into Futures and Options.