Derivative
Also called: derivatives, F&O, futures and options
A contract whose value depends on something else, called the underlying, such as a share, an index, a currency or a commodity.
Futures and options are the most common derivatives. They are used to hedge risk, to speculate with leverage, and for arbitrage. Before costs, derivative trading is zero-sum: one side's gain is the other's loss. After costs, traders as a group lose, and leveraged positions can lose more than the money put in.
Learn more in these lessons
- What derivatives areWhat is a derivative, and who wins and loses when people trade them?
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