Derivatives Meaning and Definition
Derivatives
Pronunciation
/ˈdərɪvətɪvz/
Part of Speech
Noun
Definition
A financial instrument, such as a contract or security, whose value is derived from the value of an underlying asset, causing prices to fluctuate.
Examples
- The financial analyst studied the derivatives market to understand the impact of market fluctuations on investment portfolios.
- Derivatives are often used to hedge risk or speculate on price movements.
Synonyms
- Futures
- Options
Antonyms
- Underlying
- Primary
Etymology
The word “derivative” originated from the Latin “derivare,” meaning “to draw off” or “to derive.” In the financial context, it refers to instruments that derive their value from the price movements of underlying assets.
Usage Notes
Derivatives can be used to manage risk, speculate on prices, or create income. Investors should carefully consider the risks and rewards before investing in derivatives markets.
Cultural References
Derivatives have been featured prominently in popular culture, including in films like “The Big Short” (2015) and literature like Michael Lewis’s book “The Big Short” (2010).
Idiomatic Expressions or Phrases
“Derivatives market” is often used to describe the financial system where these instruments are traded.
Related Words or Phrases
Financial instruments, such as options, futures, and swaps, are often closely related to derivatives in terms of their structure and function.
Collocations
Derivatives are often collocated with words like “market,” “price,” “risk,” and “investment” to describe their function and impact.
Frequency of Use
Derivatives are widely used in the financial industry, with the global derivatives market reported to be worth over $1 quadrillion in 2020.
Common Misspellings
Some common misspellings of derivatives include “deirvatives,” “deravatives,” and “deirvatives.”