Warrant Coverage

Understanding Warrant Coverage

In our latest addition to the online trading glossary, we take a close look at the term Warrant Coverage. As someone new to trading, this phrase may seem daunting. Yet, with a little explanation and some helpful examples, we assure you'll grasp it with ease.

What is Warrant Coverage?

Warrant Coverage refers to the extra shares that an investor can acquire in the future at a known price. Companies often issue them as a part of a share issuance or bond. The 'coverage' part refers to the percentage of the overall deal that the warrants represent.

The Purpose of Warrant Coverage

What's the goal behind Warrant Coverage? Well, it serves as a sweetener in investment deals. In essence, it enhances the attractiveness of securities issued by a company. This added incentive can encourage investors to opt for certain bonds or shares.

How Does Warrant Coverage Work?

Let's delve into how Warrant Coverage works. When an investor buys a bond or share that holds warrant coverage, they obtain the right to buy additional shares in the future. The purchase requires a set 'exercise price'. Remember: A warrant is not an obligation. It's an option. So, the investor decides if and when they want to purchase the added shares.

Benefits of Warrant Coverage

The primary benefit of Warrant Coverage for investors is the potential for additional equity. If the company enjoys success, those extra shares could become highly valuable. This promise of future rewards is an attractive selling point.

The Fine Print

Like all aspects of trading, Warrant Coverage isn't without its potential downsides. The exercise price attached to the warrant is typically higher than the company's current share price. Moreover, the beneficial results rely on the company performing well.

In Summary

Warrant Coverage is a common practice in securities trading. It refers to the additional shares an investor can purchase at a fixed price. The coverage enhances the appeal of an issue for investors and can potentially offer significant future returns.