What is underlying? What is the difference between an underlying and a derivative contract?

In derivatives trading, an underlying asset is the financial instrument represented by a derivative and is what gives a derivative its value.

An underlying asset often takes the form of stocks, bonds, indices, currencies or commodities, but it can be any asset that provides value. Example – A futures trader will buy or sell a contract that promises to deliver an underlying stock (asset) on a set future date.

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