An underlying asset is a real financial asset or security upon which the price of a derivative is based. Derivatives are financial instruments with a price that is based on a different asset. The value of the derivative is dependent on the value of the underlying asset, and any changes in the price of the underlying asset will be reflected in the price of the corresponding derivative. Underlying assets give derivatives their value. Examples of underlying assets include stocks, bonds, commodities, market indexes, currencies, and other financial assets. The underlying asset supports the security involved in the agreement, which the parties involved agree to exchange as part of the derivative contract. The value of the underlying asset at any given time lets traders know whether the option is worth exercising or not. The underlying asset could also be a currency or market index, such as the S&P 500. Different underlying asset classes are subject to different types of financial risk. Stocks and commodities are subject to market risk and general economic risk, while bonds and other debt instruments are subject to default risk, interest rate risk, and counterparty risk. Currencies are subject to interest rate risk and political risk. The underlying asset for a derivative contract is the one that is to be bought or sold on a future date.