What is Derivative ?

Derivatives is the product whose value is derived from the value of one or more basic variables, called bases(underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative.The price of the derivative is driven by the spot price of wheat which is the "underlying".