Derivative

A derivative is a financial instrument for which the value or settlement amount is derived from the value of something else. A derivative has all three of these characteristics: It has one or more underlying and one or more notional amounts or payment provisions; it requires no initial net investment or one that is smaller than would be required for other types of similar contracts; and its terms require or permit a net settlement. Forwards, futures, option contracts, and swap contracts are examples of derivatives. See also financial instrument and underlying and notional amount and settlement amount and payment provision.