{"id":6791,"date":"2025-01-20T16:45:54","date_gmt":"2025-01-20T16:45:54","guid":{"rendered":"https:\/\/www.blueleaf.com\/blog\/can-you-explain-derivatives-in-simple-terms\/"},"modified":"2025-01-20T16:45:55","modified_gmt":"2025-01-20T16:45:55","slug":"can-you-explain-derivatives-in-simple-terms","status":"publish","type":"post","link":"https:\/\/www.blueleaf.com\/blog\/can-you-explain-derivatives-in-simple-terms\/","title":{"rendered":"Can you explain ‘Derivatives’ in simple terms?"},"content":{"rendered":"

Marvin emailed me.\u00a0\"Money-words\"<\/p>\n

I had to pause.<\/p>\n

He was responding\u00a0to the Explain Jargon to Clients Tool<\/a>\u00a0I shared with him. The tool helps advisors\u00a0explain common financial jargon in ‘human words’ people\u00a0can actually understand.<\/p>\n

What about ‘derivatives’? After some thought (and consulting some of the Blueleaf team), I replied with this idea:<\/p>\n

A financial derivative is just a contract which has a value that is \u201cderived\u201d from the value of other assets the contract is tied to. The assets \u201cunderlying\u201d the derivative contract may include stocks, bonds, commodities and currencies but can include just about anything like interest rates, market indexes… and even weather! Derivatives are used to manage risk as well as to speculate. As a result, the same derivative may produce a steady cash flow or act as insurance for one party while swinging dramatically in value for the counter party.<\/p>\n

…Not perfect, maybe, but not bad either.<\/p>\n

Do\u00a0YOU like to explain tricky jargon in ‘human words’?<\/strong>\u00a0 You may like the free jargon tool.
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