Derivatives
Price On RequestA derivative is a financial instrument that is based on an "underlying", and generally tangible, asset. When buying a stock or commodity there is a financial exchange for what is essentially a material asset or instrument. The derivative instrument "derives" its value from this underlying asset, which has true material value. Derivatives gain their value by allowing the holder to exercise certain rights on the underlying. The following example helps to clarify: a person goes to the grocery store, exchanges a currency (money) for a commodity (say, an apple). The exchange is complete, both parties have something tangible. If the purchaser had called the store and asked for the apple to be held for one hour while the purchaser drives to the store, and the seller agrees, then a derivative has been created. The agreement (derivative) is derived from a proposed exchange (trade money for apple in one hour, not now).