When Should I Use Derivatives?

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In summary, derivatives are used whenever you need to measure the rate of change of a quantity, whether it be in physics, engineering, or any other technical field. They are especially useful when direct measurements of the rate of change are not possible, and can be found through various methods such as calculations or data analysis.
  • #1
thharrimw
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when to use derivatives??

i have taught myself all the different ways to find derivatives that were in a old college textbook so I was wondering if anyone could tell me how you know when you need to use derivatives.
 
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  • #2
Not really sure how to answer this.

Obvious reasons: when the problem asks you to, if you're trying to find the max/min/inflection points of a function, related rates?
 
  • #3
i mean in real life uses for derivatives.
 
  • #4
Well, think about what derivatives are. The derivative of a function is the rate of change at a specific point rather than 'average rate of change'. You do NOT need derivatives if your "real life" consists of saying "do you want fries with that" but any sort of technical work that requires precise answers (an exact value rather than an approximation or an average) uses the derivative.
 
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  • #5
If physics is "real life" enough for you, you need them all the time. As HallsOfIvy said, derivatives measure rates of change. Commonly encountered in everyday life are rate of change of position (a.k.a. velocity), velocity (a.k.a. acceleration), temperature, and about any other physical quantity you can think of.
Also if you have any model which involves rates of change in time, you will encounter derivatives, whether it be water height of the sea, air flow through a tube or stock rates.
 
  • #6
ok but how do you get the equations of someone walking.
 
  • #7
Here's a flowchart for you:

Is the quantity you're interested in changing with time and/or with space?
Yes? "Use Derivatives"
No? Then why are you interested in it?
 
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  • #8
… it all depends …

thharrimw said:
ok but how do you get the equations of someone walking.

Hi thharrimw! :smile:

I suspect that what's worrying you is why would you. for example, want to find the derivative of the distance when you could easily measure the speed directly?

And the answer is … in practice, it just depends what is easiest to measure!

If someone is walking, or driving, and you want to know their speed … well, you just measure it by using a radar gun, or looking at the speedometer, or …

In that case, it would be really silly to measure the distance, and do a calculation.

But sometimes you aren't able to measure the speed directly.

For example. you might want to know how fast a tank of water is emptying, but your only measurement is of the height of a float on the top. Then you'd have feed the measurements into a computer, which would find the derivative for you. (Or you could just plot the heights on a graph, and measure the slope!)

It all depends … :smile:
 
  • #9
thanks tiny-tim that helps a lot becouse i know how to find derivatives but i am just starting to learn where you should use them
 

1. When should derivatives be used in financial markets?

Derivatives should be used in financial markets when investors want to manage risks or speculate on future price movements. They are also used for hedging, to lock in a future price for a security or commodity. Derivatives are also used for leveraging, meaning that investors can control a larger amount of assets with a smaller amount of money.

2. What are the different types of derivatives?

The main types of derivatives are options, futures, forwards, and swaps. Options give the owner the right, but not the obligation, to buy or sell an asset at a predetermined price on or before a specific date. Futures and forwards are contracts to buy or sell an asset at a specific price on a specific date. Swaps are agreements to exchange cash flows based on the performance of an underlying asset.

3. What are the risks associated with using derivatives?

The main risks associated with using derivatives include counterparty risk, market risk, and liquidity risk. Counterparty risk refers to the risk that the other party involved in the derivative contract will default on their obligations. Market risk is the potential for losses due to changes in market conditions. Liquidity risk is the risk that an investor may not be able to sell their derivative contract at a desired price.

4. How can derivatives be used for risk management?

Derivatives can be used for risk management by allowing investors to hedge against potential losses. For example, if a company is worried about a decrease in the value of their stock, they can use derivatives such as options or futures to protect against this risk. This can help mitigate potential losses and provide stability to their portfolio.

5. What are the regulations surrounding the use of derivatives?

Derivatives are heavily regulated by government agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These regulations aim to protect investors and ensure fair and transparent trading practices. Additionally, financial institutions that use derivatives are required to have risk management systems in place to monitor and control their exposure to these instruments.

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