A derivative is exactly what it sounds like—value drawn from something else. It is a bet placed not on what something is worth today, but on what it might be worth tomorrow. Imagine you are in Haiti, where mango season is as certain and fixed as Citadel Henry. You do not own a mango tree, but you strike a deal with a grower in Léogâne—today, you agree to buy 1,000 mangoes two months from now at a fixed price, regardless of whether the harvest is good or bad. If the season is plentiful and prices drop, you overpaid. But if the rains are scarce and mangoes become rare, you’ve locked in a deal far cheaper than what the market would demand. That is a derivative—a contract tied not to the thing itself, but to the movement of its value.
But derivatives do not just stop at mangoes, rice, or oil. They can be written on almost anything—stocks, bonds, even the very likelihood of people defaulting on their loans. And that is where things get dangerous–when they move away from something tangible. Because once you start betting not on things, but on bets themselves, money becomes a game played far above the heads of the people who rely on it most.