A derivative... what pray tell is a derivative?

Interesting question. This is another type of financial contract, and it is specifically one that has it's value established through traded securities (interest rates, forex exchange rates etc).

The word derivative is actually a contraction of derivative contract, but bear that in mind to remember what it means.

The reason why they are attractive is because they can help with risk / exposure management, specifically by helping to protect against changes in value of the assets. There are many types of derivatives, some more bizarre and in some ways contrived than others.

Related Articles

Boiler Plate
Exercise price
Joint Account

More Financial Words and Vocabulary Explained