Derivative Instrument and Derivative Market Features

Free CFA Level I lesson in Derivatives. 12 min read, ~1,741 words.

A derivative derives value from an underlying asset, rate, or index. The contract is the instrument; the underlying is the reference, owned by neither party. Five core features: underlying, notional/size, price (or rate), expiration date, settlement method (physical vs cash). Notional scales the payoff but is rarely exchanged in full...