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It’s an investment that “derives” it’s value from something else. So, an oil derivative derives its value from the price of oil. It could be an agreement for me to sell you a barrel of oil at whatever the price of oil is on September 30th, 2016. Our deal is worth a certain amount right now – even though it won’t be completed until September 30th. And I could sell our agreement, perhaps, to another investor who would buy it from more for a certain amount (I’d be trading ‘oil futures’ in that example). Derivatives exist on all sorts of things: stocks, bonds, the value of currencies and commodities.

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