What are derivatives and how do they work?
We consulted the Yahoo! Finance Glossary and found this definition: A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset. At Investorwords.com, we learned that when you invest in a derivative, the underlying asset is usually a commodity, bond, stock, or currency. You “bet” that the value derived from the underlying asset will increase or decrease by a certain amount within a certain fixed period of time. Still confused? So were we. We found the Derivatives category in Business 2.0’s handy Web Guide, and with a sigh of relief, clicked on a FAQ offering “answers to 10 common questions about financial derivatives.” Derivatives is a generi
