What are derivatives (and why are they called that)? A derivative is a contract that derives its value and risk from a particular security (like a stock or commodity)—hence the name derivative.

Financial derivatives are a form of secondary investment, involving a derivative of an underlying security to provide contracts with specific terms including fixed values or fixed time periods.

Supra-national regulator the European Securities and Market Authority has written to the European Commission to ask for a single Europe-wide definition of a derivative or derivative contract.