Practical Law Glossary Item 3-382-3404 (Approx. 4 pages)
Glossary
Derivative
A contract that operates and is valued by reference to the value or performance of an asset, entity, rate, index, or other instrument that is referenced in the contract and is said to be "underlying" the transaction. Underlying assets range from commodities, currencies, debt obligations, and indices to individual equity shares and baskets of equities. Derivatives allow the user to take on exposure to an underlying asset without actually requiring a direct investment in the asset. Derivatives include futures, options and swaps.