Definition of Derivative

A security which derives its value in whole or in part based on the price of another security. Options and futures are examples of derivative securities.

Applying "Derivative" to Securities Exams:

Investors who trade in derivative securities such as options and futures contracts need to have a higher level of sophistication. These investors will not only be required to understand the risks and pricing characteristics of the derivative but also those of the underlying security or commodity.

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