How can derivatives be used to reduce risk?

How can derivatives be used to reduce risk?
A derivative contract is a form of abstract alternative investment, and includes options, futures, and swaps. The establishment of the derivative was caused by government intervention into capital markets in the form of exccess laws, regulations, and subsidies; when this occured, it made the marketplace more unstable by adding the variable of government policy and action. When government is able to usurp control over equities, portfolio's, and other tangible assets, traders developed abstract alternative investements as a hedge against this risk by allowing bets on the movement and health of said assets.

The derivative allows the user to hedge or mitigate risk in an underlying asset, wether it be equities, foreign exchange, interest, commodity, or credit.