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LSDefine
Simple English definitions for legal terms
derivative
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A quick definition of derivative:
Derivative is a type of financial tool that depends on the value of something else, like a stock or commodity. People make bets on whether the value of that thing will go up or down. Derivatives can be used to protect against changes in the market. In other contexts, derivative can also mean something that comes from or is based on something else, like a new version of a book or a purchase that was made from another purchase.
A more thorough explanation:
Derivative is a financial tool that depends on the value of an underlying asset. It is like making a bet on the value of something. If the value of the underlying asset changes, one party will usually owe something of value to the other. Derivatives can be used to protect against market changes.
For example, if you buy a derivative contract for a stock, you are betting on whether the stock's value will go up or down. If the stock's value goes up, you make money. If it goes down, you lose money.
Derivative can also refer to something that is created from or connected to another. In copyright law, a derivative work is any work that has been modified from or produced from earlier work. For example, a movie based on a book is a derivative work.
In the context of acquisition, a derivative acquisition is one that is gained from another. It is different from an original acquisition because it was never the property of another in the original purchase. For example, if a company buys another company's subsidiary, it is a derivative acquisition.