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derivative n: 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) NOTE: Derivatives often take the form of customized contracts transacted outside of security exchanges, while other contracts, such as standard index options and futures, are openly traded on such exchanges. Derivatives often involve a forward contract.
Source: Merriam-Webster's Dictionary of Law ©1996. Merriam-Webster, Incorporated. Published under license with Merriam-Webster, Incorporated.