The growing complexity and volatility of energy markets, particularly in the electricity sector, have highlighted the critical need for advanced risk management strategies and the effective use of energy derivatives. Financial instruments such as forwards, futures, options, and swaps play a vital role in mitigating exposure to price volatility, supply-demand mismatches, regulatory uncertainty, and operational risks. These tools enable energy producers, suppliers, and consumers to stabilize revenues and enhance decision-making under uncertain market conditions. This research demonstrates that energy derivatives are essential for managing financial risks in increasingly liberalized and competitive electricity markets. They contribute to market stability, investment security, and long-term planning, making them indispensable tools in a sector where uncertainty and volatility are the norm. Chapter 1 presents the Energy markets and the electricity's unique characteristics, especially the non-storability and real-time balancing requirements, necessitate well-structured market mechanisms, including day-ahead, intraday, and balancing markets. Chapter 2 presents the types of risk in the Electricity Market and Risk Management. Chapter 3 mentions the integration of quantitative tools such as the Black-Scholes model, Value-at-Risk (VaR), and Monte Carlo simulation which enables more accurate pricing, forecasting, and assessment of risk exposure in energy portfolios. Chapter 4 mentions the use and the importance of energy derivatives such as forwards, futures, options, and swaps for managing risk in volatile energy markets. Chapter 5 presents energy derivatives and their contribution to flexible and efficient solutions for managing various forms of financial and operational risks. Companies use these instruments to hedge against price fluctuations, credit exposure, and operational uncertainties. Effective hedging enhances financial stability, secures future cash flows, and supports long-term investment, especially in energy-intensive industries facing high market volatility.