Trading Warrants
What are Warrants?
Warrants are securities issued by a company, which give the holders the right to purchase shares in the company at a specific price at a future date. Warrants are tradable in their own right, and their value will go up and down as the price of the shares to which they relate goes up and down. One of the features of trading warrants is "gearing". This means that a small rise in the share price results in a large rise in the value of the warrants, and a fall in the share price has an equally dramatic downward effect on the value of the warrant.
| Five Key Benefits of trading warrants with Halifax Share Dealing |
| 1. Investors can purchase shares at later date at a predetermined price with a warrant |
| 2. Warrants should be seen as a long term investment - they can be issued with a lifetime as long as 15 years! |
| 3. The owner of a warrant doesn't have to buy the shares. They have a right, not an obligation. |
| 4. The shares are issued directly from the company who offered the initial warrant |
| 5. Highly competitive dealing charges - trade UK and international shares online for £11.95 commission |
Warrants can seem complicated and so to help you out, here is a worked example:
| Goodco issues new ordinary shares at 50p each. At the same time it gives shareholders warrants entitling them to buy shares at 100p at any time until 1st January 2014. Warrants have no right to dividends and no voting rights, so their value is tied entirely to the relationship between their exercise price and the share price of the company. If the share price is below the exercise price, the warrants are said to be "out of the money". i.e.exercising the warrants is more expensive than buying the shares on the market. If the share price rises above the exercise price, they are "in the money ", which is the opposite. |
Also the value of a warrant can easily drop to zero (if the exercise price is higher than the share price) and it will definitely be zero once the time for exercise has passed.
Warrants are complex instruments. Before you can begin trading warrants, we must assess your knowledge and experience and advise you of the risk involved relevant to trading warrants. If you want to begin trading warrants you must complete the 'Warrant Appropriateness Test'. This will be done either online or over the telephone as part of the dealing process.
Which accounts can I hold warrants in?
Share Dealing Account - the simple way to trade warrants
SIPP - take control of your pension with a Self-Invested Personal Pension
