The Underlying instrument reference article from the English Wikipedia on 24-Apr-2004 (provided by Fixed Reference: snapshots of Wikipedia from wikipedia.org)

Underlying instrument

The underlying instrument is the financial instrument upon which a derivative security's price is based.

In the financial world, it is possible to trade in one financial instrument whose value is defined in terms of the price of some other financial instrument (the 'underlying' instrument).

Stock options are a common example.

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