Derivative is a financial instrument whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be anything like equity, index, foreign exchange, commodity or any other asset.

Derivative products initially materialized as hedging device against price fluctuations in commodity market and commodity - linked derivatives remained the sole form of such products for almost three centuries.

The financial derivatives came into spotlight after 1970's period due to growing volatility

in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two thirds of total transactions in derivative products. At present the turnover in derivative market is greater than the equity market.


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