Warrants

Warrants are a form of financial instrument known as a derivative, which means they derive value from an underlying asset. This underlying asset can be a broad range of investment related products, including shares, commodities, a range of different securities, currencies and even indices.

Like most derivatives, warrants provide leverage and broad exposure to the chosen underlying asset, and there are many specific advantages and risks involved when you trade warrants. Warrants are extremely customisable, and therefore can fit numerous investment purposes, risk profiles and deliver a range of potential returns.

Terms can vary largely between warrants, but in general, a warrant gives you the right to buy or sell an underlying asset at a set price. For example, you may have a warrant to buy gold at $850 an ounce. If the price of gold rises to $900, your warrant will hold intrinsic value. Of course, if prices fall, your warrant will be worthless.

Warrants have an expiry date, and any buying or selling rights have to be exercised before expiry to remain valid. You do not have to exercise warrants if they have no intrinsic value (this means you can only lose the cost of the warrant), but you may receive a payment if they do hold value.

You must use a broker to trade warrants, and you can choose from full service brokers to non-advisory brokers. You can even trade warrants through online stock brokers, as long as they have the appropriate accreditation. Like all investment products, it is important to fully understand the terms, conditions and risks associated with warrants.

Warrants Articles

To learn more about warrants please take a look at the following articles from stockmarket.com.au:

Types of Warrants There are many ways to look at warrants that are traded on the main Australian stock exchange (the ASX), and understanding warrants can take some time...

Benefits and Risks of Warrants Warrants have increased in popularity since their inception on the Australian stock market in 1991, and they can be a valuable trading tool to add to your arsenal of financial devices...