underlying

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Related to Underlying instrument: Financial derivatives

underlying

adjective based on, basic, built on, deep-rooted, elemental, elementary, essential, latent, not evident, obscure, original, primal, primary, rudimentary, supporting, undermost, unseen
Associated concepts: underlying contract, underlying fact, underlying obligation
See also: basic, cardinal, central, essential, fundamental, initial, latent, organic, original, primary, rudimentary, substantive, virtual
References in periodicals archive ?
Valuing a financial option on an underlying instrument or asset can be modeled in different ways.
Used either for hedging or trading purposes, derivative instruments simply allowed counterparties to realize the performance of some underlying price (interest rate or currency exchange rate), without having to hold a position in the underlying instrument, per se.
Derivatives can be highly volatile, illiquid and difficult to value, and changes in the value of a derivative held by the Funds may not correlate with the underlying instrument or the Funds' other investments.
In addition, you do not own shares in the underlying instrument, but instead - you place a trade on the direction in which you believe the market will go.
These risks include, but are not limited to, volatile movements in the price of the underlying instrument and misjudgments as to the future prices of the options and/or the underlying instrument.
Derivatives instruments can be used to take both long and short positions, be highly volatile, result in economic leverage (which can magnify losses), and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk.
Derivative instruments may be difficult to value and may be subject to wide swings in valuations caused by changes in the value of the underlying instrument.
Derivative instruments can be used to take both long and short positions, be highly volatile, result in economic leverage (which can magnify losses), and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk.
If you are looking to trade the euro, but cannot afford to do so through traditional trading - you can do so for only a small initial deposit - approximately between 1%-10% of the full value of the underlying instrument - with CFD trading provider City Index.
Unlike conventional shares trading, where you buy a share on expectations of its value rising and then sell for a profit once the stock's value goes up, spread betting enables you to profit irrespective of whether the price of an underlying instrument (for example a share, commodity or stock index) is going up or down.
Purchasing options involves the risk that the underlying instrument will not change price in the manner expected, so that the investor loses its premium.
As a derivatives product, CFDs allow traders of all levels to trade on live market price movements without owning physical shares in the underlying instrument on which the contract is based.