Synthetic Products
What Does Synthetic Products Mean?
Synthetic products are financial instruments designed to replicate the trading behavior of real goods or assets. These securities derive their value from the financial performance of underlying commodities.
Insuranceopedia Explains Synthetic Products
Synthetic products are not tangible goods that an ordinary person can consume, such as food or drinks. Instead, they exist in the form of contracts. However, similar to food or drinks, they can be bought, sold, and traded.
These contracts, such as bonds and stocks, are known as derivatives. The term implies that these securities often depend on the market performance of real commodities, like agricultural produce. However, the holder of a synthetic product does not, for instance, engage in farming. What they own is a contract that can be bought or sold, with its price influenced by the market value of an agricultural product.
