Derivative is a financial instrument with the value that relies on (or derived from) some underlying asset. As the price of the underlying asset fluctuates, so does the value of the derivative.

Unlike in spot market, there is no immediate delivery of an asset when you trade derivatives. There can be no delivery at all when the contract is settled in cash. Futures, options, CFDs are all examples of derivatives. The common feature of all these instruments is that you “enter into a contract” at a specified price of an asset and then become exposed to price fluctuations of that asset price going forward.

For example, your Sell position on a CFD platform such as CEX.IO Broker is a derivative. You do not sell an actual digital asset. Neither do you need to have it in your possession to start. Yet, you will benefit if the price of that digital asset goes down. And you will have a loss if the opposite happens.

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