Derivatives are financial contracts that derive their value from a stock or an underlying asset. These could be stocks, indices, commodities, currencies, etc. These financial instruments help you make profits by betting on the future value of the underlying asset. So, their value is derived from that of the underlying asset. This is why they are called ‘Derivatives’.
Unlike purchasing stocks from the cash market, when we purchase futures contracts we are required to deposit only a percentage of the value of our outstanding position with the stock exchange, irrespective of whether we buy or sell futures. This mandatory deposit, which is called margin money, covers an initial margin and an exposure margin. These margins act as a risk containment measure for the exchanges and serve to preserve the integrity of the market.