Derivatives can trade over-the-counter (OTC) or on an exchange. OTC derivatives constitute a greater proportion of the derivatives market. Usually, stocks, bonds, commodities, currencies, and stock indices are the most common types of underlying instruments. With derivative trading, traders do not invest in the underlying asset. Instead, they hold an indirect position. In essence, any security which has its value determined by another asset is a derivative contract. When you trade in derivative products, you are not required to pay the total value of your position up front.. Instead, you are only required to deposit only a fraction of the total sum called margin. This is why margin trading results in a high leverage factor in derivative trades.