Stock warrants are a specific kind of derivative security that most people don’t know very much about. While seasoned investors, and long-time options traders, know what stock warrants are, they may not even have any idea how to trade them. Many people confuse warrants with options and think that you can profit from stock warrants the same way that you can make money with binary options trading, but that is actually not the case.
Stock options give traders the ability to buy or sell a stock to one another at a certain price. These options are “created” by traders themselves, and are traded extensively on the secondary market. Binary options are also derivative securities, but don’t give traders the chance to exercise the option and actually buy the stock. You make money with binary options when you correctly predict which way the price of a certain stock will move in a set period of time.
Stock warrants, on the other hand, are derivatives issued directly by a company which give the warrant holder the right to buy a share of stock straight from the company itself at a certain price. Generally warrants are traded less often than stock options and there are far more stock options available for trade than warrants. Warrants also tend to have much longer expiry periods than options, some lasting many years.
In some instances, to successfully trade stock warrants, it is helpful if you can combine the skills needed to make money with binary options, knowledge of the stock market, and fundamental analysis used in traditional stock picking. Chart reading alone is often not helpful in warrant trading when the underlying stock is fairly inactive. You have to take many different factors into account when choosing when and what warrant to trade.
While stock warrants may not trade that frequently on many stocks they are issued on, traders that take the time to learn the ins and outs of warrants, and master the right strategies, can find themselves in a great position to turn a large profit when the right occasion arises.