The financial instruments improve the market efficiency as the investors will sell the richer asset and buy the cheaper one until prices reach equilibrium.

2.  When we talk about derivatives, we mean an
instrument whose value is derived from the value
of one or more underlying, which can be
commodities, precious metals, currency, bonds,
stocks, stocks indices, etc.
 The most common examples of derivative
instruments are Forwards, Futures, Options and
Swaps.
 So it means derivative instruments are those
instruments that can be sold and you can gain
profit out of it.

3.  However, there are quite a few benefits of selling
financial instruments and it also has a few
purposes.
 So before we discuss about the benefits, let’s see
how a derivative derives profits form.

5.  1. When there are changes in the equity markets
and in the interests around the world.
 2. When the currency exchange rates shifts from
one place to another.
 3. When there is a change in the global supply
and demand for commodities such as agricultural
products, precious and industrial metals, and
energy products such as oil and natural gas.

6.  Futures market prices depend on a continuous
flow of information from around the world and
require a high degree of transparency.
 A broad range of factors such as the climatic
conditions, political situations, debt default,
refugee displacement, land reclamation and
environmental health, impact supply and
demand of assets and especially in the
commodities in particular.

8.  And thus the current and future
prices of the underlying asset on
which the derivative contract is
based.

9.  Derivative market is well known for its risk
management capacity. So what does the risk
management actually mean?
 This is actually a process where the level of
risks are indentified and after that, there are
measures taken through which the desired level
of risks are indentified and then alter the former
to equal the latter.
 This category actually falls under the category of
hedging and speculation.

11.  The financial instrument or the asset you are
selling would be immensely efficient in the market
and this is going to happen because it is the
derivative.
 The derivatives improve the market efficiency as
the investors will sell the richer asset and buy the
cheaper one until prices reach equilibrium. In this
context, derivatives create market efficiency.