Meaning of Derivatives

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Querist : Anonymous (Querist)

31 January 2011 what is the meaning of derivatives?

B. Gopalkrishna Baliga

B. Gopalkrishna Baliga (Expert)

31 January 2011 derivatives are the instruments which "derive" their value from underlying assets.
E.g., if their is a share of RIL, RIL-Futures will be the derivative of it since the value of futures of RIL depends on CMP of RIL

CA Ravi Sisodia

CA Ravi Sisodia (Expert)

31 January 2011 A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency. Examples of derivatives include futures and options. Advanced investors sometimes purchase or sell derivatives to manage the risk associated with the underlying security, to protect against fluctuations in value, or to profit from periods of inactivity or decline. These techniques can be quite complicated and quite risky.

CA Ravi Sisodia

CA Ravi Sisodia (Expert)

31 January 2011 The Derivatives Market is meant as the market where exchange of derivatives takes place. Derivatives are one type of securities whose price is derived from the underlying assets. And value of these derivatives is determined by the fluctuations in the underlying assets. These underlying assets are most commonly stocks, bonds, currencies, interest rates, commodities and market indices. As Derivatives are merely contracts between two or more parties, anything like weather data or amount of rain can be used as underlying assets.The Derivatives can be classified as Future Contracts, Forward Contracts, Options, Swaps and Credit Derivatives.