Desde Investopedia

TERM OF THE DAY

Derivative A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Derivatives are either traded over-the-counter (OTC) or on an exchange. OTC derivatives constitute the greater proportion of derivatives in existence and are unregulated, whereas derivatives traded on exchanges are standardized. OTC derivatives generally have greater risk for the counterparty than do standardized derivatives.

Breaking it Down: Originally, derivatives were used to ensure balanced exchange rates for goods traded internationally. With differing values of different national currencies... Read More

Related to "Derivative"

What is a derivative? A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security. 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 How can derivatives be used for speculation? Find out more about derivative securities, speculation and how derivatives could be used to speculate on the price of the underlying assets of derivatives. Read More

Related Definitions

Exchange Traded Derivative A financial instrument whose value is based on the value of another asset, and that trades on a regulated exchange. Derivative Product Company - DPC A special-purpose entity created to be a counter-party to financial derivate transactions. Underlying Option Security An underlying option security is the financial instrument on which a derivative's (i.e. an option's) value is based – it provides the price that is used to determine the value of the derivative. Underlying Asset A term used in derivatives trading, such as with options. A derivative is a financial instrument whose price is based (derived) from a different asset.