A financial contract whose proceeds, characteristics and value depend on (and so are derived from) the proceeds, characteristics and value of an underlying asset (real or financial), typically a stock, bond, commodity, currency, index, or rate. More specifically, the value of a derivative is dependent on the changes in the absolute value or relative value of the underlying. Futures and options are the most common types of derivatives. These instruments are naturally quite complicated and constitute a great deal of risk, but may also produce huge returns.

Other types of derivatives include swaps, forward contracts, and structured/ hybrid products in which a derivative element does exist.

Sophisticated investors usually tend and prefer to take part in derivative trading (purchasing and selling) to manage the risks associated with the underlying asset, to guard off fluctuations in value or returns, or to make profit from masterful and meaningful trading in periods of inactivity or decline.

From the perspective of underlying (asset, rate, price, variable, reading, etc.), derivatives may come in many forms such as: commodity derivatives, interest rate derivatives, credit derivatives, and volatility derivatives.