Warrant

A Warrant is issued by a Company giving the Holder the Right, not an Obligation, to invest in Newly Issued Shares. A Warrant is a Derivative Contract, with the Rights often issued on a Multiyear basis.

Warrants are Derivatives, the key distinguishing factor for a Warrant is that it is issued by a Company. By issuing Warrants a Company is giving the Warrant Holder a Right, but not the obligation, to invest in New Shares issued by the Company. It does sound similar to an Option Contract, but Options do not involve the issuance of New Shares, simply trades on existing Shares. Warrants are generally issued by companies in an early stage of development, higher growth companies. The issuing of Warrants enables these Companies to lock probable future demands for Equity Capital. Warrants could either be issued on a standalone contract or attached to a Bond issued by the Company. The conversion terms are regularly issued on a multiyear basis. The downside is that warrants are dilutive as new shares are issued.