What is a 'Derivative'?

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY Derivative A derivative is a financial security with a value that is reliant upon or derived from an underlying asset or group of assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its price is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Breaking it Down: Originally, derivatives were used to ensure balanced exchange rates for goods traded... Read More Related to "Derivative" Derivatives 101 Learn how to use this type of investment as an alternative way to participate in the market. Read More Futures, Derivatives and Liquidity: More or Less Risky? Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk. Read More What does it mean to be long or short a derivative? Find out more about derivative securities and what it indicates when traders or investors establish a long or short position in a derivative security. Read More Related Definitions Price Swap Derivative A derivative transaction in which one party guarantees a fixed value for the total asset holdings of an entity over a certain period of time. Read More Underlying In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised. Read More International Swaps and Derivatives Association - ISDA An association created by the private negotiated derivatives market that represents participating parties. Read More Credit Default Swap Index (CDX) A series of indices that track North American and emerging market credit derivative indexes. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: