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derivative

It’s an investment that “derives” it’s value from something else. So, an oil derivative derives its value from the price of oil. It could be an agreement for me to sell you a barrel of oil at whatever the price of oil is on September 30th, 2016. Our deal is worth a certain amount right now – even though it won’t be completed until September 30th. And I could sell our agreement, perhaps, to another investor who would buy it from more for a certain amount (I’d be trading ‘oil futures’ in that example). Derivatives exist on all sorts of things: stocks, bonds, the value of currencies and commodities.

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