<P> In finance , a derivative is a contract that derives its value from the performance of an underlying entity . This underlying entity can be an asset , index , or interest rate , and is often simply called the `` underlying '' . Derivatives can be used for a number of purposes , including insuring against price movements ( hedging ) , increasing exposure to price movements for speculation or getting access to otherwise hard - to - trade assets or markets . Some of the more common derivatives include forwards , futures , options , swaps , and variations of these such as synthetic collateralized debt obligations and credit default swaps . Most derivatives are traded over-the - counter ( off - exchange ) or on an exchange such as the Bombay Stock Exchange , while most insurance contracts have developed into a separate industry . After the financial crisis of 2007 - 2009 , there has been increased pressure to move derivatives to trade on exchanges . Derivatives are one of the three main categories of financial instruments , the other two being stocks ( i.e. , equities or shares ) and debt ( i.e. , bonds and mortgages ) . The oldest example of a derivative in history is thought to be a contract transaction of olives , entered into by ancient Greek philosopher Thales , and attested to by Aristotle , who made a profit in the exchange . Bucket shops , outlawed a century ago , are a more recent historical example . </P>
<P> In finance , a derivative is a contract that derives its value from the performance of an underlying entity . This underlying entity can be an asset , index , or interest rate , and is often simply called the `` underlying '' . Derivatives can be used for a number of purposes , including insuring against price movements ( hedging ) , increasing exposure to price movements for speculation or getting access to otherwise hard - to - trade assets or markets . Some of the more common derivatives include forwards , futures , options , swaps , and variations of these such as synthetic collateralized debt obligations and credit default swaps . Most derivatives are traded over-the - counter ( off - exchange ) or on an exchange such as the Bombay Stock Exchange , while most insurance contracts have developed into a separate industry . After the financial crisis of 2007 - 2009 , there has been increased pressure to move derivatives to trade on exchanges . Derivatives are one of the three main categories of financial instruments , the other two being stocks ( i.e. , equities or shares ) and debt ( i.e. , bonds and mortgages ) . The oldest example of a derivative in history is thought to be a contract transaction of olives , entered into by ancient Greek philosopher Thales , and attested to by Aristotle , who made a profit in the exchange . Bucket shops , outlawed a century ago , are a more recent historical example . </P>
a financial instrument whose value is derived from the value of an underlying asset is called a
a financial instrument whose value is derived from the value of an underlying asset is called a
derivative
derivative