- Home
- > Share Dealing
- > Investment options
- > Warrants
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. 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 2010. 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. they still have value but 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. |
One of the features of 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.
The owner of a warrant doesn't have to buy the shares. They have a right, not an obligation.
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 trade in warrants, we must assess your knowledge and experience and advise you of the risks involved relevant to trading warrants. If you want to deal in warrants you must complete the 'Warrant Appropriateness Test'. This will be done either online or over the telephone as part of the dealing process.
Please remember the value of your investments and the income from them can go down as well as up. You may not get back the full amount you have invested. If you're in any doubt about the suitability of any of our products, or whether to buy or sell shares, you should consult an appropriate Financial Adviser.
