What are derivatives based on?

A derivative is a financial contract that derives its value from an underlying asset. The buyer agrees to purchase the asset on a specific date at a specific price. Derivatives are often used for commodities, such as oil, gasoline, or gold. Another asset class is currencies, often the U.S. dollar. There are derivatives based on stocks or bonds.

Are derivatives a form of advanced investing?

Typically, derivatives are considered a form of advanced investing. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. Contract values depend on changes in the prices of the underlying asset.

What is a derivative contract?

Specifically, a derivative contract gets its value from various asset classes such as commodities like wheat, gold, or oil, financial instruments like stocks, bonds, market indices, forex market, cryptocurrencies, or any other asset type. Underlying assets of derivative contracts.

Why do traders use derivatives?

Traders use derivatives to access specific markets and trade different assets. Typically, derivatives are considered a form of advanced investing. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes.