But the derivative has a felicitous second meaning. Within financial parlance, a derivative is a secondary investment vehicle, an asset whose value depends on or refers to that of another. Derivatives are typically contracts between two financial actors that give one or the other the option or obligation to buy or sell another asset at a specified future time. These include “futures” contracts (agreements to purchase a certain quantity of a certain asset at a future date), “options” (like futures, but one party may opt out of the deal when the date arrives) and “swaps” (including the infamous “credit default” variety, which gives a party the option of exchanging one asset for another – often currency – if certain conditions are met). Derivatives also enable buyers to purchase only certain dimensions of an underlying security, as when banks securitized sub-prime mortgages, then sold different “tranches” of those mortgage packages to different investors interested in different levels of risk exposure. Effectively, derivatives allow investors an extremely precise tool for tailoring exposure to risk, allowing a much more meticulous and sophisticated construction of interdependent portfolios (LiPuma and Lee 2004, 33–34; Martin 2007, 31–32). Further, derivatives contracts have become tradable commodities in and of themselves, allowing financial actors to develop a speculative trade in derivatives – that is, to create further derivative products out of multiple derivative contracts. Since the 1970s, the volume of derivative contracts and exchanges has skyrocketed, such that, by 2006, the notional value of over-the-counter derivatives was worth over 600% of the global GDP (Foster and Magdoff 2009, 28). This fictitious capital tremendously influences economies and markets large and small, as it rushes in and out of national currencies and government bonds, and global agricultural and energy products, not to mention mortgages, real estate and corporate shares.

Max Haiven, Cultures of Financialization, loc. 478