SHORT NOTES ON DERIVATIVES

DEFINITION of 'Derivative'

A security whose price is derived from one or more underlying assets. Derivatives is just a contract between two or more parties. Fluctuations of underlying assets determined its value. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
 

poornima lagadapati

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The key purpose of a derivative is the management and especially the mitigation of risk. When a derivative contract is entered, one party to the deal typically wants to free itself of a specific risk, linked to its commercial activities, such as currency or interest rate risk, over a given time period.
 
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