What is an 'InterestRate Derivative'
An interestrate derivative is a financial instrument based on an underlying financial security whose value is affected by changes in interest rates. Interestrate derivatives are hedges used by institutional investors such as banks to combat the changes in market interest rates. Individual investors are more likely to use interestrate derivatives as a speculative tool  they hope to profit from their guesses about which direction market interest rates will move.
BREAKING DOWN 'InterestRate Derivative'
A plain vanilla interestrate swap is the most basic type of interestrate derivative. Under such an arrangement, there are two parties. Party one receives a stream of interest payments based on a floating interest rate and pays a stream of interest payments based on a fixed rate. Party two receives a stream of fixed interest rate payments and pays a stream of floating interest rate payments. Both streams of interest payments are based on the same amount of notional principal. Through this exchange, or swap, of cash flows, the two parties hope to reduce uncertainty and the threat of loss from changes in market interest rates. Other types of interestrate derivatives include eurostrips, swaptions and interest rate call options, to name just a few.

Basis Rate Swap
A type of swap in which two parties swap variable interest rates ... 
Fixed Price
The leg of a swap that is based on an unchanging interest rate. ... 
Derivative
A security with a price that is dependent upon or derived from ... 
Interest Rate Call Option
An interest rate derivative in which the holder has the right ... 
Derivative Product Company  DPC
A specialpurpose entity created to be a counterparty to financial ... 
Eurostrip
A series of consecutive threemonth futures contracts based on ...

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. 
Investing
What's an Interest Rate Swap?
An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount. 
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. 
Investing Basics
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates. 
Investing Basics
How Are Interest Rate Swaps Valued?
When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps. 
Options & Futures
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Active Trading
How Companies Use Derivatives To Hedge Risk
Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices. 
Trading Strategies
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Investing Basics
Warrants
Learn more about this derivative security. 
Options & Futures
Futures, Derivatives and Liquidity: More or Less Risky?
Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.

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 >> 
How can an investor reduce interest rate risk?
Learn about the different ways investors can reduce interest rate risk. Locking in interest rates increases certainty for ... Read Answer >> 
What does the notional principal of a derivative contract refer to?
Find out more about the notional principal amount, interest rate swap agreements and how the notional principal amount in ... Read Answer >> 
Can bond traders trade on interest rate swaps?
Read about interest rate swaps and why these transactions are performed by institutional actors in the bond market, not individual ... Read Answer >> 
What expiry months are typically available for derivatives?
Discover more about the derivatives market and learn about the varying expiration months for derivatives in different financial ... Read Answer >> 
Do interest rate swaps trade on the open market?
Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >>