The word derivative comes from Latin and means “to derive.” It is a financial instrument that describes a future-oriented contractual transaction based on a particular condition of the underlying asset it is derived from. Underlying assets can be, for example, shares, currencies, indices, and commodities. Therefore, the derivative’s price development depends on the development of the underlying itself. Derivatives can take on the form of futures, options, and swaps. They serve various purposes, such as speculation or hedging against economic risks. Derivatives can be traded at the bank, on the stock exchange, or special exchanges.
Do you find the explanation helpful?