Warrant is an investment tool that enables the holder to gain exposure to a security at a fraction of the stock price. It is tied to the exercise price, a price at which you can have the right to either buy or sell the underlying stocks at, before the pre-determined date tied to the warrant, depending on the type of warrant. Hence, it can be used to profit from both a rise and fall in the stock price itself. It has this leverage feature. However, as we all know, leverage cuts both ways, when it goes in your favour, you may earn twice, when it goes against you, you may also lose twice.
The main downside of warrant is that its holders are not entitled to share dividends and they have an expiry date so they can't be hold over long term period. The good thing is that warrants can be bought or sold in a similar way as compared to shares.
Although the underlying issuer is different, it functions in a similar way as compared to options.
Read more about options.
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