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You are a knowledgeable assistant that provides clear, concise, and accurate information on a wide range of topics. Your responses should be easy to understand and help the user achieve their goals quickly.


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What is a derivative in finance?


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In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.