A derivative or a derivative contract is a bilateral contract the value of which is derived from the value of an underlying asset or assets at a future date. The underlying asset (often referred to as the "underlying" or "underlier") may comprise any of a number of assets. For example, the underlying asset may comprise a commodity, a currency, interest rates, the value of a property, a share in a company or indices of assets.

The definition is best illustrated by describing one of the simplest forms of derivative contract, the forward contract. Under a forward contract, one party (the seller) agrees to sell to another party (the buyer) an asset at a future date (the settlement date) and at a price which is fixed at the time the contract is entered into (the strike price). The following characteristics of the forward contract are common to all derivative contracts:

The most common types of derivative are forwards, futures, options, swaps and credit derivatives, such as credit default swaps.

For UK corporation tax purposes, derivative contracts are defined as contracts that satisfy the conditions in Chapter 2 of Part 7 of the Corporation Tax Act 2009. For further detail, see Practice note, Derivatives: tax.

For an overview on derivatives, see Practice note, Derivatives: overview (UK).