Investing / Trading in Warrants
Warrants give investors an alternative way to borrow to invest in some of Australia’s leading companies and a variety of other underlying assets, such as, indices, currencies, commodities and listed managed investments.
Warrants are a form of derivative – that is, they derive their value from another ‘thing’ (underlying instrument). Some give holders the right to buy, or to sell the underlying instrument (eg. a share) to the warrant issuer for a particular price according to the terms of issue. Alternatively, others entitle holders to receive a cash payment relating to the value of the underlying instrument at a particular time (eg. index warrants).
Warrants may be issued over securities such as shares and Exchange Traded Funds (ETFs), a basket of different securities, a share price index, debt, currencies, or commodities.
Warrants and Instalments online course
Types
Broadly, there are two types of warrants:
|
ASX Warrants |
|
|---|---|
| Investment Warrants | Trading Warrants |
| Why are they used? Borrow to invest in shares and increase exposure to potential capital growth, dividends and franking credits. |
Why are they used? Trade the rise or fall of shares, indices, commodities and currencies. |
| Investment time-frame: Medium to long term. |
Investment time-frame: Short-term. |
|
Key benefits: |
Key benefits: Leverage and no margin calls |
| Key investment risks: Leverage can magnify losses. |
Key investment risks: Leverage can magnify losses. |
| Used by: Self-managed Super Fund and individual investors. |
Used by: Self-managed Super Fund and individual investors. |
Warrants traded on the ASX market since 1991 and are issued by some of the leading investment banks in the world and Australia.
Where to next?
There are many types of warrants, each with different characteristics, risk profiles, leverage and terms. This provides investors with a lot of choice and as such you should be sure you take time to learn and understand how to best use warrants when making your investment decisions. ASX and warrant issuers have a number of resources such as online courses and booklets to help you understand the benefits, risks and uses of warrants.
- Read the Understanding trading and investment warrants booklet
- Take the Warrants and Instalments online course
- Speak to a broker or adviser: To find out if warrants may be suitable for you, contact your broker or advisor.
