What are the advantages

Gearing

The main advantage of Covered Warrants is that they allow you to amplify you exposure to the underlying movement of a stock or asset. This is because you only have to put up a fraction of the money that you would normally have to invest to buy the underlying asset.

You can only lose your stake

Unlike spread betting and other trading options, losses on Covered Warrants are limited to your initial investment - you cannot lose more.

Cash commitments

You can use Covered Warrants to reduce the amount of cash you need to back a particular stock.

Therefore an investor could sell a share holding, maintain the same position in that share by buying a Covered Warrant, and bank the rest of the cash.

Accessibility

Covered Warrants are offered by a range of brokers and financial institutions and can be bought and sold in much the same way as shares.

Warrants tend to be offered on large solid underlying instruments that are very liquid.

Stamp duty

Warrants are exempt from stamp duty in most circumstances, except where there is a physical exercise for a call warrant on a share.

Hedging your bets

Covered Warrants can be used to hedge investments in a volatile market. For example a put warrant guarantees a minimum price for the underlying share ie the exercise price.

In this scenario the warrant price becomes an insurance premium against unexpected market or share price falls.