Sunday, November 28

Warrants – the classic among leverage products

How to Buy and Sell Warrants

Warrants, the classic among leverage products, are usually issued by banks. You can find an abundance of warrants on various underlyings at, for example Vontobel, Societe Generale, JP Morgan or HSBC. The financial institutions that issue warrants issue them as bearer bonds. When they are issued, warrants are given a securities identification number (WKN) or an International Securities Identification Number (ISIN) by a finance company in order to be able to clearly identify the warrant.

Originally, warrants were also issued by companies to secure their funding. At the time, warrants were often linked to bonds. In this case, the issuer guaranteed the buyer the right to purchase company shares at a previously determined price. It was not until the 1990s that it became common to issue other underlyings and not to link them to (corporate) bonds.

As an investor, you can buy warrants either from the issuing house or via traditional stock exchanges.

In addition to a securities account with a broker or a bank, investors also need a kind of “permit” to trade warrants: they must first be able to enter into financial futures.

Our recommendation: Warrants are considered speculative asset classes. You should therefore familiarize yourself with the risk information before investing.

As a rule, the broker can grant you the ability to enter into financial futures without any problems if you have proven that you already have experience in trading speculative investments such as warrants, or that you have taken note of the relevant forms or instructions on trading in warrants.

There are various ways to find suitable warrants. If you already know the underlying value of your warrant, it is also worthwhile specifically with issuers such as Vontobel, Societe Generale, JP Morgan or HSBC to look for suitable products.

Once you have acquired the ability to enter into financial futures and have selected a suitable product, the securities identification number (WKN) or ISIN will help you to identify the warrant unequivocally. You can then purchase the warrant over the counter directly from the issuer who issues the product. To do this, he asks his broker the price for the warrant and then has the option of buying it or canceling the purchase. In direct trading, warrants can also be acquired outside of the regular opening hours of the stock exchange. In this way, investors who buy warrants in over-the-counter trading can benefit from current developments on the US stock exchanges.

In addition to direct trading, warrants can also be purchased in regular exchange trading. To buy a warrant, warrant buyers use the stock exchanges. The advantage is that buyers can set limited purchase prices or hedges to limit losses when buying on the stock exchange. In exchange trading – unlike in direct trading – there is an additional brokerage fee for the exchange operator. However, the exchange operators also offer trading monitoring when buying warrants, which makes trading with warrants safer than buying warrants in direct trading.

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