Derivatives are securities or financial instruments whose value is derived from the value of another, underlying asset. They can be bought, sold and traded in a similar way to shares or any other financial instrument. The underlying assets or instruments on which derivatives can be based include commodities, equities, residential mortgages, commercial real estate, loans, bonds, interest rates, exchange rates, stock market indices, consumer price indices and weather conditions. The main types of derivatives are forward contracts, futures, options and swaps. Credit derivatives are based on loans, bonds or other forms of credit. The pricing and performance of derivatives is often based on that of the underlying asset, although the reverse may also be true. Derivatives can drive the underlying market and the volumes traded in certain futures and options contacts can exceed those in the underlying cash markets. Derivatives can be traded on an exchange or in an over-the-counter (OTC) market. Global derivatives traded market volume is in the hundreds of trillions of dollars annually.

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