What are derivatives? (2024)

FAQs

What are derivatives easily explained? ›

What Is a Derivative? The term derivative refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. A derivative is set between two or more parties that can trade on an exchange or over-the-counter (OTC).

Derivatives are defined as the varying rate of change of a function with respect to an independent variable. The derivative is primarily used when there is some varying quantity, and the rate of change is not constant.

derivative, in mathematics, the rate of change of a function with respect to a variable. Derivatives are fundamental to the solution of problems in calculus and differential equations.

The derivative is "better division", where you get the speed through the continuum at every instant. Something like 10/5 = 2 says "you have a constant speed of 2 through the continuum". When your speed changes as you go, you need to describe your speed at each instant. That's the derivative.

Derivatives can be difficult for the general public to understand partly because they involve unfamiliar terms. For instance, many instruments have counterparties who take the other side of the trade. The structure of the derivative may feature a strike price. This is the price at which it may be exercised.

A derivative is described as either the rate of change of a function, or the slope of the tangent line at a particular point on a function. What is a derivative in simple terms? A derivative tells us the rate of change with respect to a certain variable.

derivative noun [C] (FORM)

a form of something made or developed from another form: This is a derivative of seaweed that is currently used as a food additive. language specialized. a word developed from another word: "Detestable" is a derivative of "detest".

Legal Definition

derivative. 1 of 2 noun. de·​riv·​a·​tive də-ˈri-və-tiv. : a contract or security that derives its value from that of an underlying asset (as another security) or from the value of a rate (as of interest or currency exchange) or index of asset value (as a stock index)

Mathematically, the derivative formula is helpful to find the slope of a line, to find the slope of a curve, and to find the change in one measurement with respect to another measurement. The derivative formula is ddx. xn=n. xn−1 d d x .

Graphically, the first derivative gives the slope of the graph at a point. The second derivative tells whether the curve is concave up or concave down at that point. If the second derivative is positive at a point, the graph is bending upwards at that point.

What is derivative trading for dummies? ›

What is a derivative for dummies? Think of a derivative as a bet between two parties about the future price of something, like gold or a company's stock. Instead of buying the actual gold or stock, you enter into a contract where you agree to pay or receive the difference in price at a future date.

A derivative in calculus is the rate of change of a quantity y with respect to another quantity x. It is also termed the differential coefficient of y with respect to x. Differentiation is the process of finding the derivative of a function.

Derivatives are financial contracts whose value is linked to the value of an underlying asset. They are complex financial instruments that are used for various purposes, including speculation, hedging and getting access to additional assets or markets.