TRADING WARRANTS
Warrants can be easily traded through Trader Dealer on our trading platforms Market Analyser and WebIRESS. Warrant trading follows the same "straight through processing" order management and is charged at the same low rate of $19.50 (inc GST).
About Warrants
Warrants are financial instruments issued by banks, governments and other institutions, and are traded in the ASX Limited ("ASX") cash markets. They are very 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' (the underlying instrument). Some 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. Warrants have similarities to ETOs. Warrants and options are primarily financial products that allow you to gain exposure to the underlying instrument without necessarily owning that instrument.
There are, however, some key differences between warrants and ETOs, such as:
The terms of ETOs are standardised and are set by ASX, whereas the terms of different warrant series are set by the issuer and can be quite diverse.
Unlike ETOs, you cannot write warrants and there are no margin payments associated with warrants to cover the risk of financial loss.
Settlement of warrant trades occurs through CHESS in the same manner as share transactions are processed.
Benefits of Warrants
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Leverage
Most warrants offer some degree of leverage (internal link to Leverage in Glossary). This can range from negligible leverage to a high level of leverage, depending on the type of warrant. Some warrants, such as structured investment products, effectively have no leverage and generally speaking, investment-style warrants offer less leverage than trading-style warrants.
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Speculation
If a speculator believes that the value of a particular asset will rise in the future they could purchase a deliverable call warrant over the asset. Purchasing a leveraged warrant costs less than purchasing the underlying asset. There is, however, the risk that the warrant will be worthless at the expiry date.
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Investment for Income
Holders of instalments are entitled to the full dividends and franking credits. This income stream is accelerated as the holder only pays a fraction of the share price upfront. If the share price is $10 and pays a 50c dividend, this would give holders a 5% yield, while an instalment worth $5 would entitle the instalment holder to the same 50c dividend generating a 10% yield.
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Portfolio Protection: Hedging
Equity and index put warrants allow you to protect the value of your portfolio against falls in the market or in particular shares. Put warrants allow you to lock in a selling price for the underlying instrument. Protecting your position in this way is called hedging.
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Diversification and Broader Market Exposure
Some warrants, such as index and basket warrants, offer you the opportunity to profit from movements in the market or in a sector without necessarily owning a large portfolio, which effectively tracks the market or sector. International index warrants, international equity warrants and currency warrants allow you to gain exposure to overseas and other markets.
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Tax Effectiveness
Some warrants, such as instalments and endowments, offer tax effective benefits to investors. The disclosure document will contain information on tax considerations.
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Further Information
Before trading warrants, Trader Dealer insists that you read the ASX-produced brochure, Understanding Warrants This will help you to appreciate and understand the risks associated with derivative trading.
For further information please visit the warrants section on the ASX website.
