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A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves.

Because there is nothing physically being traded when derivative positions are opened, they usually exist as a contract between two parties.

Derivatives are financial instruments that acquire the majority of their value from the price of the underlying asset they are tracking such as commodities and currencies, or from securities such as stocks and bonds.

Swaps, futures, forwards, and options are the most common derivatives. Investors trade them on an exchange or over-the-counter (OTC) usually as an alternative to speculating in the underlying asset or to hedge their risk on a position in the underlying asset.