What is the difference between a security and a derivative?

When it comes to investment law in Washington, there are two primary instruments that investors can use to make investments: securities and derivatives. The difference between these two instruments is important to know because they are treated differently under the law. Securities are a type of investment that represent an ownership interest in an entity. This could be stocks, bonds, mutual funds, and other traditional investments. When an investor buys a security, they are buying a right to own a fraction of an entity in exchange for a financial investment. Derivatives, on the other hand, are a type of investment instrument with a value that is derived from the underlying security or asset. Examples of derivatives include options, futures contracts, and swaps. They are not ownership interests, but rather contractual agreements that allow investors to bet on the future value of the underlying asset. The value of the derivative is tied to the underlying asset, so investors are essentially betting on the future performance of the asset. In summary, the difference between a security and a derivative is that securities represent ownership interests, while derivatives are financial instruments that derive their value from the underlying asset or security. Both of these instruments are regulated by investment laws in Washington, so knowing the difference is important for investors who are looking to make investments.

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What is the difference between a security and a derivative?

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