Derivatives products have become essential in portfolio diversification, price discovery and risk hedging. Derivatives are complex instruments; their role is twofold, risk management and speculation, and their actual Impact on the underlying assets’ behaviours are not well understood. Little is documented empirically on how these instruments’ two-edged roles influence firms’ financing decisions, firm risk exposures, and stability. Given the growing interest in using derivatives in risk management and portfolio engineering, this study examines the practical impact of derivatives usage on the underlying firm’s financing policy and stability. The paper uses data from South African listed non-financial firms for the period 2000 to 2019. The study employs a dynamic panel model estimated with System Generalised Methods of Moments (GMM). The initial analysis shows that derivatives use reduces the cost of capital and increases firm stability. However, further in-depth analysis provides evidence that extensive use of derivatives increases firms’ capital costs and negatively impacts financial stability. These findings imply that the risk embedded in derivatives’ speculation dominates their risk management function. The results are subjected to numerous controls for robustness, including financial leverage, firm size, cashflows and asset tangibility.