Derivative Contract

Definition ∞ A derivative contract is a financial agreement whose value is derived from an underlying asset, group of assets, or benchmark. Common examples include futures, options, and swaps. These contracts allow participants to speculate on future price movements or hedge against market risks without directly owning the underlying asset. They are often used for risk management or to gain exposure to markets with limited capital.
Context ∞ In the digital asset space, derivative contracts on cryptocurrencies are a significant and expanding market, frequently featured in news related to institutional adoption and market liquidity. Regulators globally are grappling with how to classify and oversee these products, given their potential for both market efficiency and systemic risk. The growth of decentralized derivative platforms (DeFi derivatives) presents new challenges and opportunities, allowing for permissionless trading and novel financial instruments.