Warrants are a form of derivative issued by a bank, government or other financial institution and traded on the ASX.
They allow investors to trade an underlying instrument, such as shares, without having to own the shares outright.
There are different types of warrants available for trading or investment including Self Funding Instalments, trading warrants, MINIs, barrier warrants, commodity warrants, currency warrants, structured investment products and endowment warrants. Some warrants have higher risk/return profiles than others.
Warrants can be either call warrants or put warrants:
- Call warrants benefit from an upward price movement in the underlying instrument
- Put warrants benefit from a downward trend
The above fact sheets and guides can be found on the ASX website. The ASX Education section provides access to interactive and educational material covering various topics, including Warrants.
Some warrants, such as instalments, allow investors to gain the major primary benefits of share ownership including:
- Participation in capital movements in the shares
- Receipt of dividends and franking credits
Instalment warrants, put simply, are a loan to buy shares without the obligation to repay the loan. You only have to make an initial payment and the final payment is optional and payable at a later date.
Self Managed Superannuation Fund (SMSF) members can use instalments to legally gear their fund.
- Some warrants have features that make them riskier than others.
- Time value erosion may adversely affect the price of a warrant even if the underlying instrument moves in the desired direction.
Contact us to seek specific advice about the risks and features of particular warrants.
Morgans Gladstone can advise and assist you with trading and investing in warrants. Contact us for more information.