Definition of Financial Derivatives

A financial derivative is a contract between two (or more)
parties where payment is based on (i.e., "derived" from)
some agreed-upon benchmark.

Since a financial derivative can be created by means of a
mutual agreement, the types of derivative products are
limited only by imagination and so there is no definitive
list of derivative products.

Some common financial derivatives, however, are
described later.

More generic is the concept of “hedge funds” which use
financial derivatives as their most important tool for risk
management.