Derivative Security is a financial security whose value is derived from the value of another security (underlying asset) such as equity or debt instrument. It can derive directly from an underlying asset or from the underlying asset’s derivatives. Derivative can also be defined as a contract or agreement, which value depends on the performance of an underlying asset.

In a more specific definition, derivative is a traded financial contract between two or more parties to buy or sold an asset/commodity on an agreed time and price. The future value of the derivative is highly influenced by its underlying asset in the Spot Market.