Future Derivation an Overview

A derivative is simply any financial instrument that “derives” its value from the price movement of another instrument. In other words, the price of the derivative is not a function of any inherent value, but rather of changes in the value of whatever instrument the derivative is tracking.Futures differ in several ways from many other financial instruments. For starters, the value of a futures contract is determined by the movement of something else – the futures contract itself has no inherent value. Secondly, futures have a finite life. Unlike stocks, which can stay in existence forever, a futures contract has a set expiration date, after which the contract ceases to exist. This means that when trading futures, market direction and timing are vitally important.
many futures traders employ more sophisticated trades the outcomes of which depend upon the relationship of different contracts with each other (these will be explained later in this guide). Perhaps the most important difference, however, between futures and most other financial instruments available to individual investors involves the use of leverage.