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Warrants - Investors Academy


What is a warrant?

Buying warrants is very similar to buying options. The big difference with options: an option is a standard contract and a warrant is a custom contract. Just as with an option, a warrant has a leverage effect: you can earn a lot with a relatively small amount or you risk losing a lot.

Therefore, first read the Investors Academy page on buying options.

What right do you buy with a warrant?

If you buy a warrant, you will have the right to buy (call warrant) or sell (put warrant) a predetermined amount of an underlying asset during the exercise period, at a predetermined price. With most warrants, the underlying asset is a number of shares, but it can also consist of currency or commodities, for example

What you need to know about warrants

In order to successfully trade in warrants, it is important that you know the features of this complex investment product:

  1. The differences with options

    • Options are issued through the options exchange. Warrants are issued directly by companies and financial institutions.
    • Warrants are custom contracts and are less easy to trade than shares and less easy than standard options contracts.
    • The issuer of the warrant determines the contract size, the exercise price and the term. With options, the contract size is the same for all options. For share options, for example, the standard is 100 shares. 
    • With a warrant, there is only one exercise price and one term. With options, there are different option series for each underlying asset with different exercise prices and terms. The options exchange regularly releases new options series, as long as the underlying asset meets certain conditions. 
    • Warrants can only be bought, not written. Options can be bought and written.
    • The term of a warrant is generally somewhat longer than that of options, usually the term is several years.
  2. You have bought a warrant, then what?

    With options and warrants it is important to look at the price of the underlying asset:

    • Have you bought a call warrant and does the price of the underlying asset rise above the exercise price? Then it may be attractive for you to exercise your warrant and to purchase the underlying asset at the exercise price. Or if you do not want the shares, you can sell the warrant at a profit.
    • Have you bought a put warrant and does the price of the underlying asset fall below the exercise price? Then it may be attractive for you to exercise your warrant and to deliver the underlying asset at the exercise price. Obviously, you can only do that if you actually have the underlying asset in your investment portfolio. If you do not have the underlying asset, you can sell the warrant at a profit.
    • If the price of the underlying asset does not meet your expectations and does not come close to the underlying asset, your warrant will expire on the maturity date without value. You therefore can lose your entire investment in the warrant, which is your maximum loss. You can of course also try to sell your warrant earlier during the exercise period to limit the loss. Since if you sell the warrant before the maturity date in this case, you will incur less loss than if the warrant expires without value. 
  3. Watch the leverage effect

    Warrants also operate with a leverage. Leverage ensures that the profit you can make is higher than the profit you could make if you were to invest directly in the underlying asset. You have to invest a smaller amount, while your chances of winning are equal. The leverage therefore gives you more benefit from a share price movement of the underlying asset than if you invested directly in it.

    But this also applies the other way: if the price movement of the underlying asset is wrong for you, you will also lose more than with a direct investment in the underlying asset.

    Investing in warrants is risky, you can lose your entire investment.


This is how you trade in warrants

At ABN AMRO, you can trade warrants with the investment method Self Directed Investing Plus. Warrants are complex investment products with high financial risks. Before you can trade in warrants at ABN AMRO, we first ask you to take a knowledge and experience test on warrants. If you pass the test, you have sufficient knowledge to be able to invest in warrants.

Investing in shares with ABN AMRO


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