What are DERIVATIVES (One of the types of COMPLEX FINANCIAL INSTRUMENTS)?

Some types of Complex Financial Instruments:

• Options
• Futures / Forwards
• SWAPS
• Credit Derivatives
• Structured Products
• ETF (Exchange Traded Funds)
• CFD (Contracts For Difference)
• UCITS (Undertakings for Collective Investment in Transferable Securities)
• Convertible Bonds
• CMO (Collatoralized Mortgage Obligations)
• CDO (Collatoralized Debt Obligations)
• CDS (Credit Default Swaps)
• CFD (Contracts For Differences)
• MBS (Mortgage backed Securities) or
• ABS (Asset Backed Securities)

A derivative instrument is a contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments, or payoffs, are to be made between the parties

Derivatives - Complex Financial Instruments:

A derivative is defined as a financial instrument or contract whose value is derived from some other financial measure (underlyings--that is, commodity prices, interest rates, exchange rates, indexes of financial items, etc.) and includes payment provisions (notional amounts: cash, commodities, shares of stock, etc.) Typical derivative financial instruments include option contracts, interest rate caps, interest rate floors, fixed-rate loan commitments, letters of credit, forward contracts, forward interest rates agreements, interest rate collars, futures, and swaps.

Definition of 'Derivative':
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

'Derivative' explained:
Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region. Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.

From the link: http://www.investopedia.com/terms/d/derivative.asp#axzz1rId3JAnh