Word of the Day | Derivative


Word of the Day | Derivative

"Derivative" is a financial term that refers to a type of investment that derives its value from an underlying asset.

It is like a contract between two parties, where the value of the contract is based on the price movements of something else, such as stocks, bonds, commodities, or even currencies. A common example of a derivative is a futures contract. Imagine you want to buy a specific item, let's say corn, but you don't want to take physical possession of it right away. Instead, you enter into a futures contract, which is a derivative. This contract specifies that you will buy a certain amount of corn at a future date for an agreed-upon price. The value of this futures contract is derived from the price of corn in the market. If the price of corn goes up before the contract expires, the value of your contract also increases. This means you can potentially make a profit by selling the contract before it expires, even without owning the physical corn.

In simpler terms, a derivative is like a financial agreement or contract that depends on the price movements of something else. It allows investors to participate in the price changes of an underlying asset without directly owning it.Derivative

Derivatives are used by investors to speculate, hedge risks, or gain exposure to various financial markets.

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