Credit default swap and Credit derivative

Credit default swap is the most basic form of credit derivative trade. It is constructed to transfer the credit risk of an asset without transferring ownership of that asset.
A credit default swap (CDS) is a swap contract in which the protection buyer of the CDS makes a series of payments to the protection seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default.
A CDS contract involves the transfer of the credit risk of municipal bonds, emerging market bonds, mortgage-backed securities, or corporate debt between two parties. It is similar to insurance because it provides the buyer of the contract, who often owns the underlying credit, with protection against default, a credit rating downgrade, or another negative "credit event." The seller of the contract assumes the credit risk that the buyer does not wish to shoulder in exchange for a periodic protection fee similar to an insurance premium, and is obligated to pay only if a negative credit event occurs. It is important to note that the CDS contract is not actually tied to a bond, but instead references it. For this reason, the bond involved in the transaction is called the "reference entity." A contract can reference a single credit, or multiple credits.
Credit derivatives are instruments that allow one party to transfer an asset's credit risk to another party without transferring ownership of the underlying assets.
Credit derivative structures such as credit default swaps, total return swaps and credit-linked notes, have become hugely popular both for managing credit risk and outright speculation.
A credit derivative is a financial instrument that allows participants to decouple credit risk from an asset (for example, a loan, bond or swap) and to place it with another party.
Credit derivatives can be structured to create a range of credit strategies for investors. For example, by combining a credit derivative with a risky bond, a credit derivative can be used to:
create a risk-free position in the assetspeculate on credit events such as the likelihood of a bond credit rating downgradeinsure against the default of emerging market sovereign debtCredit derivatives are similar to interest rate and currency derivatives in that they enable an investor to speculate on a market move without actually purchasing the underlying asset.