Derivative
In
Financial Markets a derivative is an instrument that
derives it's value from another,
underlying instrument.
Derivatives have no value on their own, unlike, for example, a share in a company
(more commonly called stock) or a
bond.
Derivatives are interesting since they have no existince in a tangible, or physical form; they are
virtual instruments.
Derivatives are used for what is known as
Risk Management . They accomplish this because of their intrinsic property of
leverage .
This leverage accounts for their bad
reputation as well as the rather spectacular
failure of some
financial institutions trading them.