In newspaper advertisments or on the Singapore Exchange's website.
What does it mean?
Warrants are an alternative to traditional investment choices like shares and bonds.
They are a type of traded instrument linked to an underlying asset, such as shares, and they give the holder the right to buy or sell the asset at a fixed price on or before a certain date.
They effectively allow investors to bet on the future price movements of, say, a stock such as DBS Group Holdings or a stock market index such as Hong Kong's Hang Seng Index.
Why is it important?
When you buy one lot - 1,000 shares - of DBS, it can cost you nearly $20,000, assuming a market price of $20 a share.
A rise of 1 per cent in the DBS share price will give you a return of $200. But $20,000 is a big sum to shell out.
Warrants are a cheaper way to gain exposure to pricey bank stocks. If you buy a DBS warrant with an effective gearing of 10 times, it should return the same profit of $200.
Effective gearing indicates roughly how many per cent a warrant price will move if the underlying stock changes by 1 per cent.
The DBS warrant will cost you just $2,000 but you reap the same return.
One big advantage of trading warrants over stocks is the gearing effect, which means you can make huge gains with a modest investment outlay.
A call warrant gives the investor the option to buy the stock at a set price over a certain period, while a put warrant gives the option to sell.
So you want to use this term. Just say...
'I think the DBS stock is likely to rise so I might want to buy a call warrant.'
