Derivative

A derivative is a financial contract whose value is based on, or “derived” from, the price of an underlying asset such as a cryptocurrency, rather than being the asset itself. Common types include futures, options, and perpetual contracts. Derivatives let participants gain exposure to price movements without necessarily owning the underlying, and they can involve leverage, which magnifies both gains and losses.

They settle according to defined terms—by exchanging cash or the asset at agreed conditions. A common misconception is that holding a derivative is the same as holding the underlying asset; it is a separate contract with its own rules, counterparty considerations, and expiry or funding mechanics.