What do we mean by the word derivatives?

Derivatives derive their value from an underlying asset. This underlying asset could be a stock, index, bond, gold, commodity etc. That is how the term derivatives came into being. Broadly, the derivatives market in India consists of the forward market and the exchange traded derivatives market. Forwards are informal derivative products and are only traded among higher regulated entities. For example, the dollar forward cover used by banks is an example of a forward transaction. Futures and options trading are typically exchange traded products. Option trading in India is a lot more complex compared to futures trading which is more plain vanilla.