SECONDARY DERIVATIVE Meaning and
Definition
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The term "secondary derivative" refers to an advanced financial concept that represents a derivative instrument whose underlying asset is itself a derivative. In other words, a secondary derivative is a derivative that derives its value from another derivative instrument rather than directly from an underlying asset like stocks, bonds, or commodities.
Secondary derivatives are created by combining two or more primary derivatives. This process allows investors and financial institutions to gain exposure to multiple layers of risk or to create complex hedging strategies. They are commonly used by sophisticated market participants to manage risk, speculate, or hedge against market movements.
Secondary derivatives come in various forms, such as collateralized debt obligations (CDOs) or collateralized mortgage obligations (CMOs). These are types of derivatives that are derived from bundles of underlying debt instruments, creating an additional layer of risk and complexity.
It is important to note that secondary derivatives have a higher degree of complexity and risk compared to traditional derivatives. Their valuation and analysis require a deep understanding of the underlying derivatives and their interdependencies. Additionally, secondary derivatives often have limited liquidity and may face challenges in their pricing and trading. Due to these complexities, secondary derivatives play a significant role in institutional investing and are not typically utilized by individual retail investors.
Common Misspellings for SECONDARY DERIVATIVE
- aecondary derivative
- zecondary derivative
- xecondary derivative
- decondary derivative
- eecondary derivative
- wecondary derivative
- swcondary derivative
- sscondary derivative
- sdcondary derivative
- srcondary derivative
- s4condary derivative
- s3condary derivative
- sexondary derivative
- sevondary derivative
- sefondary derivative
- sedondary derivative
- secindary derivative
- seckndary derivative
- seclndary derivative
- secpndary derivative
Etymology of SECONDARY DERIVATIVE
The word "secondary" derives from the Latin word "secundarius", which means "following" or "next in order". It is derived from the Latin word "secundus", meaning "second".
The word "derivative" comes from the Latin word "derivatus", which is the past participle of "derivare", meaning "to derive". It is derived from the Latin word "de", which means "from", and "rivus", meaning "stream" or "course".
When combined, "secondary derivative" refers to something that is derived or obtained from a source or a primary derivative, indicating a further level of derivation or a second-order derivative.
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