Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"They are an investment that has actually been around for centuries. It is simply an investment where you are betting on the change in some underlying investment -- particularly the change in the value of some underlying investment -- so it is your return in derived (therefore derivative) from another investment.

"So you are betting on price movements, and you can bet that the underlying investment goes up in price or goes down in price -- doesn't matter, you can take either bet. And if you bet right you win; if you bet wrong, then you lose.

"Businesses use these all the time to what's called hedge against big price fluctuations. For example, an airline might buy a derivative that will pay off if jet fuel rises. Therefore they will make money from the derivative and use that money to compensate for the increase in cost of jet fuel.

"Also economists think that derivatives are helpful in giving a sense to the market of where investors think prices will go. So if you see a lot of buying of derivative that is betting that, for example, oil prices are going up, that may be that's a good indication that, hey, the market thinks that oil prices are going up.

"The problem that we ran into with derivatives is that many of them were bought with very low margins that ... didn't have a lot of cash involved. And so when those derivatives actually lost money, the investors lost big, big, big money."