A derivative instrument:

Question

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A derivative instrument derives its value from the performance of the underlying instrument, which can be a stock, commodity, currency, or other financial asset. It is a contract between two parties that specifies the terms of the payoff based on the movement of the underlying asset. Derivatives are often used for hedging, speculation, or arbitrage purposes, and they can be high-risk or low-risk depending on the type of instrument and the strategy used. Derivatives can be traded on organized exchanges or over-the-counter (OTC) markets. Option, futures, swaps, and forwards are some common examples of derivative instruments.

A Derivative Instrument