How to buy and sell warrants
Warrants, which are classic leverage products, are usually issued by banks. You can find an abundance of warrants on different underlyings, for example at Vontobel, JP Morgan or HSBC. The financial institutions that issue warrants issue them as bearer bonds. When issued by a financial institution, warrants are given a security identification number (WKN) or an international securities identification number (ISIN) in order to be able to clearly identify the warrant.
Originally, warrants were also issued by companies to secure their funding. At that time, warrants were often linked to bonds. In this case, the issuer assured the buyer of the right to receive company shares at a predetermined price. It was only in the 1990s that it became common to issue other underlyings and not to link them to (corporate) bonds.
As an investor, you can buy warrants either from the issuing house or through the traditional stock exchanges.
In addition to a securities account with a broker or a bank, investors also need a kind of “permission” to trade warrants: they must first acquire financial futures capability.
Our recommendation: Warrants are considered speculative asset classes. You should therefore familiarize yourself with the risk warnings before investing.
As a rule, the broker issues financial futures if you have demonstrated that you already have experience in trading speculative investments such as warrants, or if you can prove that you have knowledge of the relevant forms or information on trading in warrants.
You can find suitable warrants in different ways. If you already know which underlying your warrant should be, it is also worthwhile for issuers such as Vontobel JP Morgan or HSBC to search for suitable products.
Once you have acquired financial futures capability and selected a suitable product, the securities identification number (WKN) or ISIN will help you to identify the warrant without any doubt. You can then purchase the warrant off-exchange directly from the issuer that issues the product. To do this, he asks his broker the price of the warrant and then has the opportunity to buy it or to cancel the purchase. In direct trading, warrants can also be purchased outside the regular opening hours. In this way, investors who buy warrants in over-the-counter trading can benefit from current developments on the US stock exchanges.
In addition to direct trading, warrants can also be purchased in regular stock exchange trading. Buyers of warrants use the stock exchanges to buy a warrant. It is an advantage that buyers can set limited purchase prices or hedges to limit losses when buying on the stock exchange. In exchange trading, unlike in direct trading, there is an additional brokerage fee for the exchange operator. However, the exchange operators also offer trading monitoring when buying warrants, which makes trading with warrants more secure than when buying warrants in direct trading.