Derivative (finance)

A derivative is a financial instrument that gets its value from an underlying asset. For example, if you buy a stock, it is an asset that directly gives you a certain amount of money. But a derivative is a contract between two parties (like you and your stock broker) that derives its value from the price of the underlying asset. So if you buy a derivative based on a stock, the value of your derivative will increase when the stock goes up, and decrease when the stock goes down. This means that you can make money if you correctly predict whether a stock's value will go up or down, without actually having to buy the stock.