Warrant Investment

Warrant InvestmentA warrant is a type of financial instrument that is issued with certain conditions by a company.

 A warrant gives the holder the right but not the obligation to buy an underlying security at a certain price, time and quantity. The security represented in the warrant – usually share equity - is delivered by the issuing company instead of the investor who is holding the shares.

Warrants are usually included as part of a new issue offering by a company. For example, a new start up company can issue a combination of a warrant and common or preferred convertible stock are bundled into units. These units will be split at a future date into stocks and warrants. This is a common way for new start up companies to receive funding.

Warrant certificates have certain conditions that are specified about the investment they represent. All warrants have an expiry date and the underlying instrument the warrant represents is also stated on the certificate. It usually corresponds to a specific number of shares but it can also represent a commodity, index or currency.

For an example, a warrant may be issued that has conditions that in exchange for one warrant you will receive 100 ordinary shares in the company any time after a specified date and before the expiry date. The expiry date can be extended by the supplying company.

Warrants are transferable, quoted certificates and they are attractive for mid to long term investments. They are good for private investors because the cost is usually low and the initial investment needed to own a sizeable equity is quite small.

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