What is an 'Equity Derivative'
An equity derivative is a derivative instrument with underlying assets based on equity securities. An equity derivative's value will fluctuate with changes in its underlying asset's equity, which is usually measured by share price.
BREAKING DOWN 'Equity Derivative'
Investors can use equity derivatives to hedge the risk associated with taking a position in stock by setting limits to the losses incurred by either a short or long position in a company's shares. The investor receives this insurance by paying the cost of the derivative contract, which is referred to as a premium. If an investor purchases a stock, he or she can protect against a loss in share value by purchasing a put option. On the other hand, if the investor has shorted shares, he or she can hedge against a gain in share price by purchasing a call option.
Options are the most common equity derivatives because they directly grant the holder the right to buy or sell equity at a predetermined value. More complex equity derivatives include equity index swaps, convertible bonds or stock index futures.

Underlying Asset
A term used in derivatives trading, such as with options. A derivative ... 
Underlying Option Security
An underlying option security is the financial instrument on ... 
Derivative
A security with a price that is dependent upon or derived from ... 
Exchange Traded Derivative
A financial instrument whose value is based on the value of another ... 
Underlying Security
The security on which a derivative derives its value. For example, ... 
Derivatives Time Bomb
A possibile situation where the financial markets plunge into ...

Investing
What Is A Derivative?
A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies. 
Options & Futures
Derivatives 101
A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the assetâ€™s price movement with another party. 
Fundamental Analysis
Derivatives 101
Learn how to use this type of investment as an alternative way to participate in the market. 
Options & Futures
Are Derivatives A Disaster Waiting To Happen?
They've contributed to some major market scandals, but these instruments aren't all bad. 
Options & Futures
5 Equity Derivatives And How They Work
These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in. 
Options & Futures
Was Buffet Right about Derivatives as WMDs?
Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful? 
Stock Analysis
Make An Extra $35K A Year In The Most Misunderstood Financial Market
I want to let you in on a secret: Wall Street doesn't make most of its money from the stock market.#ad_banner#While trading equities constitutes a large part of "big banking," ... 
Investing Basics
Explaining Market Value of Equity
Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time. 
Fundamental Analysis
Calculating the Equity Risk Premium
Equity risk premium is the excess expected return of a stock, or the stock market as a whole, over the riskfree rate. 
Options & Futures
Is Your Mutual Fund Safe?
You might be carrying more risk than you think if your fund invests in derivatives.

Can mutual funds invest in derivatives?
Find out about mutual fund investment options, and understand whether mutual funds are permitted to include investments in ... Read Answer >> 
What kinds of derivatives are traded on an exchange?
Learn about the different types of derivatives traded on exchanges, including options and futures contracts, and discover ... Read Answer >> 
What is the difference between derivatives and swaps?
Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >> 
Are ETFs considered derivatives?
Learn why most exchangetraded funds (ETFs) are not considered derivative securities and the special circumstances when this ... Read Answer >> 
What does the underlying of a derivative refer to?
Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ... Read Answer >> 
What are the main risks associated with trading derivatives?
Understand derivatives trading and learn about the primary risks usually associated with trading in the derivatives market, ... Read Answer >>