A derivative or a derivative contract is a bilateral contract the value of which is derived from the value of an underlying asset or assets at a future date. The underlying asset (often referred to as the "underlying" or "underlier") may comprise any of a number of assets. For example, the underlying asset may comprise a commodity, a currency, interest rates, the value of a property, a share in a company or indices of assets.

The definition is best illustrated by describing one of the simplest forms of derivative contract, the forward contract. Under a forward contract, one party (the seller) agrees to sell to another party (the buyer) an asset at a future date (the settlement date) and at a price that is fixed at the time the contract is entered into (the strike price). The following characteristics of the forward contract are common to all derivative contracts:

The most common types of derivative are forwards, futures, options, swaps and credit derivatives, such as credit default swaps.

For more information on derivatives, see Practice note: overview, Derivatives: overview (Australia).