What Role Does an Oracle Play in a Smart Contract for Derivatives Trading?

An oracle is a third-party service that provides real-world data to a smart contract, as blockchains cannot access external information directly. In derivatives trading, an oracle feeds crucial data, like the current price of an underlying asset (e.g.

ETH/USD), to the contract. This data is essential for triggering the contract's execution, such as calculating a payoff or initiating settlement.