1 Overview of Derivatives

Derivatives are contracts that derive their value from one or more underlying assets. The underlying assets can be stocks, bonds, commodities, currencies, interest rates, market indexes or even the weather. The value of the derivative is determined by fluctuations in these underlying assets.

Derivatives are generally used as an instrument to hedge risk. Additionally, it can also be used for the following purposes:

• To speculate - to reflect a view on the future direction of the market
• To enhance liquidity
• To change the nature of an investment without incurring the costs of selling one portfolio and buying another

This topic contains the following sub-topics:

• Types of Derivative
  This topic describes the Derivative types and Derivative Instruments.
• Features of Derivatives
  This topic describes the features of the derivatives to configure the general attributes of the derivative product