foxex: What is a 'Derivative'?

Sunday, December 16, 2018

What is a '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...

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Related Definitions

Price Swap Derivative

Under a price swap derivative, one entity delivers stock, or other collateral, to guarantee a fixed value for the total asset holdings of another entity.

Underlying

Underlying, in equities, refers to the common stock that must be delivered when a warrant is exercised, or when a convertible bond or convertible preferred share is converted to common stock.

International Swaps and Derivatives Association - ISDA

The International Swaps and Derivatives Association (ISDA) is a member-based group that sets best practices for the derivatives market.

Credit Default Swap Index (CDX)

The credit default swap index (CDX)—formerly the Dow Jones CDX—is a financial instrument composed of a set of credit securities issued by North American or emerging markets companies.