Derivative Security Definition

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Definition Of Derivative Security:

Usually takes the form of an agreement to buy or sell an asset or item (commodity, property, security) at a fixed price on or before a certain date.
Derivative securities are traded on exchanges like other financial instruments, and their value varies with the value of the underlying assets (which are traded separately from the derivatives). Futures contracts, forward contracts, options and swaps are some common types of derivatives used in hedging or to gain leverage. Also called contingent claim since the payoff from a derivative is dependent upon whether or not some event occurs. See also credit derivative and derivative contract.

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