A derivative is a security that gets its value from another financial asset but has no financial value in and of itself. A share of a company has inherent value in that you actually own a part of the company. However, an option – a derivative that gives you the option to either sell or buy a particular asset by a set date – derives its value from the potential value of the asset. There are many types of derivatives including futures, swaps, and exotic derivatives.

Tags: derivatives, futures, options