Derivative

Tax Glossary Definition

Derivative

Derivative – A derivative is a financial contract whose value is derived from an underlying asset, such as stocks, indices, commodities, currencies, or interest rates. Derivatives are often used for hedging risk, speculation, or arbitrage.

Example: A futures contract on the NIFTY index is a derivative. Its value depends on the price movement of the NIFTY index, not on a physical asset. An investor can profit from rising or falling index values without owning the actual stocks

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