Synthetic

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DEFINITION of 'Synthetic'

A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.

INVESTOPEDIA EXPLAINS 'Synthetic'

For example, you can create a synthetic stock by purchasing a call option and simultaneously selling a put option on the same stock. The synthetic stock would have the same capital-gain potential as the underlying security.

RELATED TERMS
  1. Underlying

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  5. Call

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