A financial instrument whose value depends on the market value of some underlying asset. The parties to a derivative contract essentially make a bet on the value of the underlying asset. Depending on the change in value for the underlying asset, one party will usually owe something of value to the other. Derivatives can be used to hedge against market fluctuations.
Definition from Nolo’s Plain-English Law Dictionary
A financial instrument whose value is based on the value of an underlying security, such as a commodity, currency, or bond. The most common derivatives are futures, options, and swaps. They are used to manage risk and fluctuations in the value of the underlying security but are often risky and complicated investments.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:14 pm