What You Can Invest In
Company Warrants
What are Company Warrants?
Company warrants are issued by companies on their own ordinary shares to raise capital for themselves. Their value depends on the value of the ordinary share which is the underlying security.
Warrants cost a fraction of the price of their underlying security and give the buyer the right (but not the obligation) to buy this underlying security at a predetermined price (the Strike or Exercise Price) on or before a predetermined date (the "Expiry" Date).
How do they work?
Warrants are part of the family of Securitised Derivatives as their value depends on the value of the underlying security. As such, the warrant investor gains economic exposure to this underlying security without actually owning it. Investors buy the warrants at a fraction of the price of the underlying security and only upon exercise do they pay for the ordinary shares, at which point they know the actual value of the shares in comparison to the predetermined price that should be paid.
To exercise a warrant means to exercise the rights attributed by the warrant. Hence, when a warrant holder exercises a warrant, it means that they want to buy the underlying security at the exercise price from the issuer.
How risky are they?
The value of a warrant is determined by these factors:
- The underlying security price
- The exercise price of the warrant
- The volatility of the underlying security price
- The time to expiry of the warrant
- The interest rate and the dividend yield of the underlying asset.
Liquidity risk
In the face of insufficient buy orders, the market price of the warrant will be affected and hence, there is a risk that a warrant holder is not able to sell his warrants for a reasonable price in the market.
Limited life of warrants
A warrant has a limited life due to an expiry date. A warrant may become worthless if your expectations are not realised before expiry. Upon the selecting of a warrant, ensure there is sufficient time to expiry in order to realize your expectations.
Which account should I choose to invest in Company Warrants?
You can invest in Company Warrants through our Trading Plus or SIPP accounts.
Existing customers
You can upgrade your account to trade in Company Warrants by visiting our Account Upgrades page. If you do not have one already, we will firstly need to upgrade you to a Trading Account. This can be done easily once you have logged in. To upgrade today, simply log in and go to Account Administration/Account Upgrades.
