A term that encompasses types of securities that have no real value of their own, but whose value depends on, or is derived from, some other value such as a prevailing market price, stock value or market index. Typically, the "other value" isn't established, and will only be known at some time in the future.

Derivatives are commonly used in the energy industry as risk management instruments. Properly used, they can provide insurance against interest rate or energy price hikes, improve the investment quality of a utility's issues of bonds or other securities, or offer any number of other benefits. Examples of common derivatives in the energy industry include options, futures and forwards. Bonds themselves do not qualify as derivatives because they represent actual asset value that could, if necessary, be recovered from the bond issuer at a moment's notice.

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