What are warrants?

Warrants are financial instruments issued by approved financial institutions and are traded on the ASX. They are broadly split into investment style products and trading style products.

Warrants are a form of derivative – that is, they derive their value from another ‘thing’ known in financial markets as the ‘underlying’ being a security etc.. Some warrants give holders the right to buy, or to sell the underlying instrument (e.g. 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 (e.g. index warrants).

Warrants may be issued over securities (such as shares), a basket of different securities, a share price index, debt, currencies, or commodities.

Some warrants have higher risk/return profiles than others that offer lower risk features such as capital guarantees.

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The ASX Warrants market

Warrants are traded in many key financial markets of the world. ASX has operated a warrants market since 1991.

Warrants have become an increasingly popular investment alternative in recent years. The chart shows the increase in the number of warrants available.

The market began by trading equity call warrants only. Other types have been introduced over time. There are now a number of different warrants available for trading including instalments, structured investment products, trading warrants, knock-out warrants, and commodity warrants.

Information contributed by ASX. To see the full course on Warrants go to: https://www.asx.com.au/investors/investment-tools-and-resources/online-courses/warrants-course