A contract/ instrument (a financial derivative) that involves two parties (a seller and a buyer) and derives its value from a currency amount, the asset underlying the contract. A foreign currency derivative may take many forms, primarily: currency options, currency swaps, currency forward contracts, currency futures, currency futures options, quantos, etc. Generally, a foreign currency derivative involves trading a determined amount of a specific currency or the right to trade a pre-determined amount at a set date.

The payoff of a foreign currency derivative depends on the foreign exchange rates of two currencies (i.e., a pair of currencies). Exotic versions of currency derivatives (exotic currency derivatives) entail trades involving more than two currencies in the same contract or structure.

Foreign currency derivatives may be exchange-traded contracts (exchange-traded derivatives) or OTC contracts (OTC derivatives). Investors and traders buy or sell specific amounts of a currency on a pre-specified date and rate (exchange rate), either spot or forward.

A foreign currency derivative is also known as a currency derivative a FX derivative.