Derivatives

A derivative changes exposure to a price or event without necessarily moving ownership of the referenced asset.

margin or premium → derivative system → contingent exposure
payoff or loss    ← settlement rule  ← reference price or event

The reference may be a token price, interest rate, volatility measure, index, or event. The derivative is a derivative exposure, claim, and obligation defined by a contract; it is not automatically the referenced asset, its governance rights, its income, or a right to redeem it.

Concepts in this family

• Perpetual future provides continuous long or short price exposure without a fixed expiry.
• Derivatives margin assigns collateral and loss capacity to leveraged positions.
• Funding rate transfers value between sides of a perpetual market under a venue-specific rule.
• Derivatives liquidation closes or transfers positions after a maintenance-margin breach.
• Synthetic asset reproduces selected exposure without conveying ownership of the reference.
• Option creates an asymmetric payoff tied to a strike, direction, size, and expiry.
• Hedging combines offsetting positions to reduce a named risk rather than all risk.

A reusable derivative checklist

For every derivative, record:

1. the reference asset, event, index, price source, unit, and timestamp;
2. long and short or holder and writer, position size, direction, and notional;
3. entry, mark, settlement, strike, expiry, and exercise rules where applicable;
4. collateral, initial margin, maintenance margin, leverage, and withdrawal rules;
5. premium, funding, trading fees, liquidation charges, and who receives each;
6. the counterparty, pool, insurance, backstop, and final loss bearer;
7. liquidation, expiry, exercise, transfer, and settlement state transitions; and
8. oracle, liquidity, governance, upgrade, bridge, and accounting dependencies.

A payoff diagram alone does not prove the position can be collateralized, liquidated, or settled as promised.