Derivative

The term derivative is used in a number of ways, and is sometimes used synonymously with other terms such as futures contacts (futures).

In most cases, the word derivative is used to describe an agreement in which a buyer and seller which agree to buy, sell or exchange specific assets at some point in the future.

The price of derivatives dependent on (and therefore “derived” from) its underlying value, which is made up of assets stocks, bonds, commodities or precious metals.

Based on this definition, swaps, conditional time-limited contracts such as future options, and unconditional time-limited contracts like futures and forwards are all derivatives.

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