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. Call

    1. The period of time between the opening and closing of some ...
  2. Synthetic Lease

    An operating lease that is structured in a way so that it is ...
  3. Bifurcation

    The splitting of a larger whole or main body into two smaller ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Put

    An option contract giving the owner the right, but not the obligation, ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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