Derivative

A contract or agreement whose value changes with changes in an underlying index such as interest rates, foreign exchange rates, share prices or indices and which requires no initial investment or an initial investment that is smaller than would be required for other contracts with a similar response to market factors. The principal types of derivatives are: swaps, forwards, futures and options. types of contracts with a similar response to market factors. The principal types of derivatives are: swaps, forwards, futures and options.