What are Covered Warrants

As a way to invest, warrants themselves are nothing new.

In a nutshell, a warrant is a right (but not the obligation) to buy or sell an underlying asset on or before a set date at a set price.

And warrants are regularly used for a range of assets such as stocks, indices, currencies and commodities.

But most warrants currently available on the London stock market tend to be illiquid instruments that were initially designed to raise funds for particular companies and investment trusts and only offer the right to buy shares.

This is where Covered Warrants come in.

Covered Warrants are essentially derivative products, issued by major financial institutions who will guarantee to deliver an underlying asset at a set price.

As such the value of a warrant is linked to the value of the underlying asset eg the share price - and they offer a much more flexible and liquid way of backing different kinds of assets.