Warrants are financial instruments that trade on the market just like stocks, but they have very different characteristics. Before investing in one, it's important to understand how they work and what risks they carry.
What is a warrant?
A warrant is an instrument that gives you the right to buy or sell an underlying stock at a set price before an expiration date. On Bitso, you can only sell warrants, not exercise them. This means that if you don't sell your warrant before it expires, it will lose all its value and you won't be able to recover your investment.
Can I exercise a warrant on Bitso?
No. On Bitso, warrants are only available for buying and selling on the secondary market. This means you can't exercise the right a warrant represents, meaning you can't use it to buy or sell the underlying stock at the agreed price. Your only option to recover value from a warrant is to sell it on the market before its expiration date. If the warrant reaches its expiration date without being sold, it will lose all its value and the invested capital isn't refunded.
How is it different from a stock?
| Stock | Warrant | |
|---|---|---|
| Expiration | No expiration date | Has a deadline |
| Value at expiration | Keeps its value | Can drop to $0 |
| Identification | Standard ticker | Ticker ends in "W" (e.g. CRESW, AUUDW) |
| Order types | Market and limit | Limit only during low liquidity |
How do I identify a warrant in the app?
- They have a Warrant badge on the asset detail screen.
- Their ticker generally ends in "W."
- Before confirming a purchase, you'll see a warning with the instrument's specific risks.
A warrant's lifecycle
- Active and tradeable: the warrant trades normally. You can buy and sell it with market or limit orders.
- Illiquid: when there's little market activity, the warrant can become hard to sell. In this state, you can only use limit orders, since market orders aren't available.
- Expired or worthless (Worthless Removal): when a warrant reaches its expiration date with no value, it's recorded as a corporate action called Worthless Removal. The asset is automatically removed from your portfolio, and you get a notification in the app.
Risks of investing in warrants
- Total loss of capital. If the warrant expires worthless, you lose the amount invested. There's no refund.
- Illiquidity. In low-liquidity situations, there may be no buyers available, making it hard or impossible to sell before expiration.
- High volatility. A warrant's price can change drastically in a short time, more than a regular stock's.
- Fixed expiration date. Unlike a stock, you can't wait for the price to recover, because the warrant has a deadline.
Make sure you understand these risks before investing. If you have questions, consult a financial advisor.