Can you explain - in somewhat simple terms?
I'll explain the Gold Carry Trade (there are many others):
Central Banks like our own held/hold gold. When the gold spot prices were low, Central Banks entered into what are called "carry agreements" with 3rd parties: they "lent out" their gold (or a portion) in return for 1% "rent" on the gold per annum.
The people who pay to "rent" the gold, then sold it, and bought treasuries (returning say 2%-8% depending on currency/country). This depressed the gold price since gold flooded the market. ALSO it depresses the price since the CB "lent" it, it is still on their books as a hard holding! So the gold became 2X on paper, distorting any supply/demand equation.
Everything is/was hunky dory, until the gold price starts escalating (largely due to inflation).
The gold is gone, but since the CB "lent" it, (remember) it is still on their books as a hard holding. The carrier is on the hook for the gold, which is payable on demand to the CB, subject to the terms of their agreement with respect to the carry period.
So, you have large CBs with large gold holdings on paper (not so large in reality). You have gold that can't possibly be returned because it will bankrupt the carrier. The CBs have little choice but to extend carry periods, even as gold price increases, making the situation even more untenable. Sooner or later, those gold reserves may be needed.... they will have vanished.
Derivatives are simply investment vehicles that have no value intrinsic to them. You are trading not a commodity or stock, but a promise. Futures are a good example. You are trading the ability to buy a good at a fixed price in the future, subject to exchange policies and exigencies. So the "paper" you hold has no value, it's not corn that bought, its the ability to buy 10 truckloads of corn at $1 bushel or whatever in 90 days.
There are positions you can take with simple 1:1 leverage, and massively leveraged positions are available too (these are the norm).
Now this isn't so bad applied to corn, but it has been applied to precious metals, stocks, bonds, and even Fannie/Freddie credit of all things! You literally have people betting on the success of mortgages, highly leveraged at that! At some point, this compound leverage becomes a house of cards that whipsaws and falls under its own weight. Applied to anything but commodities, they are leveraged bets on somebody else making a bet, or not. Bad juju.