DEFINITION of 'Flow Derivative'
A securitized product that aims to provide maximum leverage. Some popular flow derivatives include vanilla options, leveraged synthetic spot positions (WAVE XXLs) and synthetic structured forwards (such as bonus certificates). Flow derivatives are traded on exchanges or other electronic platforms.
BREAKING DOWN 'Flow Derivative'
Flow derivatives are traded on electronic platforms, hence the availability of real time prices and the ability to place trades automatically. Flow derivatives typically allow investors to take on a directional position on exchange rate movements.