What is Derivative And Its Types

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A derivative is a contract between two parties which derives its value or price from an underlying asset. A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, stocks etc. The derivative itself is a contract between two or more parties, and its price is determined by fluctuations in the underlying asset.

Derivative contracts are of several types. The most common types are,

  • Forwards
  • Futures
  • Options
  • Swap