Derivatives are used for the following:
Hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out
Create option ability where the value of the derivative is linked to a specific condition or event (e.g., the underlying reaching a specific price level)
Obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives)
Provide leverage (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative
Speculate and make a profit if the value of the underlying asset moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level)
Switch asset allocations between different asset classes without disturbing the underlying assets, as part of transition management
Avoid paying taxes. For example, an equity swap allows an investor to receive steady payments, e.g. based on LIBOR rate, while avoiding paying capital gains tax and keeping the stock.
SOURCE:WIKIPEDIA.COM