What is Derivative?

Category: Finance

1Definition

A financial contract whose value is derived from an underlying asset, index, or rate.

2Context

Includes options, futures, and swaps. Used for hedging and speculation.

3Example

An oil futures contract derives its value from the price of oil.

⚠Common Trap

Derivatives can amplify losses—Warren Buffett called them 'financial weapons of mass destruction.'

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