Synthetic Products

Published: | Updated: October 23, 2017

Definition - What does Synthetic Products mean?

Synthetic products are instruments in the financial industry that can simulate the trading of authentic goods or assets. They take the form of securities that rely on the financial health of commodities.

Insuranceopedia explains Synthetic Products

Synthetic products are not goods that an ordinary person can consume, like food or drinks. They exist in contractual form. But just like food or drinks, they can be bought, sold, and traded.

These contracts (bonds, stocks) are called derivatives. The term suggests that these securities often rely on the market of real commodities, like the produce of the agricultural sector. But the one who holds a synthetic product does not engage in, say, actual farming. Instead, what the owner of a synthetic product holds is a contract that can be bought or sold and the price of which can depend on the market price of an agricultural product.

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