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• Stocks and shares (equities)
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• Covered Warrants

Covered Warrants

Covered Warrants – what are they?

Covered Warrants are issued by financial institutions and then listed as fully tradable securities on the London Stock Exchange.

A Covered Warrant gives the holder the right (without obligation) to buy or sell an underlying asset, at a specified price, on or before a predetermined date. For many investors, Covered Warrants will seem similar to Options. Covered Warrants typically have longer maturities than Options, and are issued for a wider range of assets.

The terms are also more varied – Covered Warrants are highly flexible and can be issued on underlyings meet market demand. For example, you can invest in Covered Warrants based on foreign equities and indices, the housing market or commodities such as gold, silver and oil.

With Covered Warrants you cannot lose more than your initial investment. Your maximum loss is known in advance, and there are no margin calls (further payments to maintain your position). This differentiates Covered Warrants from some other forms of derivatives.

Types of Covered Warrant

Stock warrants

These are Covered Warrants on single shares, and account for a little over half of those available. The main focus is on popular UK blue chip shares. There are also some Covered Warrants on popular shares in other markets, including US stocks such as Yahoo! and Microsoft.

Baskets

For exposure to a particular theme or sector, a number of securities are sometimes grouped together in a ‘basket’. Investors can then obtain exposure to this basket simply and efficiently by buying one single security in the form of a Covered Warrant.

Index

In most Covered Warrants markets around the world, the most actively traded warrants tend to be those on the main domestic market index. In the UK, the FTSE 100 Index has been a consistently popular underlying. Covered Warrants have also been issued over other UK market indices such as the FTSE 250 Index, and a range of overseas indices.

There are also warrants that give exposure to house prices via the Halifax house price indices. You can gain exposure to the wider UK house prices and profit from the increases and decreases.

Commodity

It can be difficult for private investors to gain exposure in sterling to major commodities such as gold, silver and oil. Using Covered Warrants it is possible for investors to take positions on these commodities, in small size and in sterling.

Currency

The same applies to currencies. Covered Warrants are available on a range of exchange rates, including sterling/dollar, sterling/euro and yen/dollar.

Risks

Before trading in Covered Warrants it is essential you fully understand the risks involved. The first time you trade in Covered Warrants with us, you will be need to complete an appropriateness assessment.

You should consult an independent financial adviser if you are unsure whether Covered Warrants are a suitable investment for you.