Derivatives markets:

The term "Derivative" indicates that it has no independent value, i.e., its value is entirely "derived" from the value of the  underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words,

Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Derivatives are also known as "deferred delivery of deferred payment instruments". In a sense, they are similar to securitised assets, but unlike the later they  are not the obligations, which are backed by the original issuer of the underlying assets or security. With Securities Laws (Second Amendment) Act, 1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in  Securities Contracts (Regulations) Act, as:

A Derivative includes:

a) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for ifferences or any other form of security;

b) a contract which derives its value from the prices, or index of prices, of underlying securities.

Eg. A stock option is a derivative whose value is dependent on a price of a stock. However, derivative can be dependent on almost every variable from price of hogs to the amount of snow falling at a certain ski resort. The derivative contract also has a fixed expiry period mostly in the range of 3 to 12 months, from the date of commencement of the contract. The value of the contract depends on the expiry period and also on the price of the underlying asset.