Invest in rising or falling markets

Before trading you should fully understand the nature of covered warrants and your exposure to the risk involved. The geared nature of covered warrants means that a relatively small movement in the share price of the underlying asset will result in larger movements in the value of the warrant. Therefore, covered warrants provide the opportunity for greater returns than ordinary share dealing but also greater risks and potential losses. If you are in any doubt you should consult an Independent Financial Advisor.

There are two types of Covered Warrant; Call Warrants for investors who believe a share price, index or commodity will rise, and Put Warrants for those who believe they will fall.

Covered Warrants have a fixed expiry date - usually six or twelve months from the issue date. At expiry, a warrant will pay out depending on how far a particular share, index or commodity is above a fixed level known as the "Strike" price which is set on issue. The higher the share price is above the strike level, the higher the potential payout for a Call warrant. If the share price is below the Strike price, the warrant expires with no payout. For a Put Warrant to generate profit, the share price must be below the stated Strike price.

They are also popular because you can benefit from the movement of an underlying asset price at a lower cost than purchasing a share, index or commodity. This enables you to ‘gear up’ to amplify your exposure, or ‘gear down’ to reduce your capital invested. Unlike a share holding, the holder of a Covered Warrant will not receive a dividend payment.