Classification Based on the Underlying Asset

Derivatives can be classified based on the type of underlying asset:

1. Equity Derivatives: Underlying assets are stocks or stock indices (e.g., S&P 500 futures, options on individual stocks).
2. Fixed Income (Interest Rate) Derivatives: Underlying assets are bonds or interest rates (e.g., Treasury bond futures, interest rate swaps).
3. Currency (Foreign Exchange) Derivatives: Underlying is a currency exchange rate (e.g., EUR/USD forward contract).
4. Commodity Derivatives: Underlying assets are physical commodities like oil, gold, or agricultural products (e.g., oil futures, gold options).
5. Credit Derivatives: Underlying is the creditworthiness of an entity or a debt instrument.
6. Other: Derivatives can be based on a wide range of other underlying variables, such as weather, cryptocurrencies, or even insurance-related events.