Warrant Risks You Need to Know
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Warrants are one of the instruments available in the stock market for making profits.
However, it is not as easy as sipping teh tarik at a kopitiam to make PROFIT OF 6-10% A DAY.
If someone tells you it is 100% guaranteed profit, that looks like a SCAM.
Because in stocks, we cannot predict 100% of price movements whether up or down, but with knowledge we know how to avoid the risk of losses.
For those who have been following our posts, we have previously discussed "What is a Warrant", "How to Convert a Warrant Before It Expires" and "5 Things You Must Know Before Buying Warrants"
Among the reasons traders love trading warrants is because they are CHEAP, QUICK TO PROFIT, AND HIGH DAILY RETURNS when done right.
These are among the main factors.
However, this article is not about that. We want to share the RISKS involved in WARRANTS
Every warrant issued has an expiry date. The closer a warrant is to its expiry date, the lower your potential profit due to several factors such as HIGH PRICES, THIRD-PARTY MANIPULATION, and others.
This risk arises if the company that issued the warrant is unable to fulfil its obligations upon the exercise of the warrant. The ones who lose out are the traders.
Because of their low prices, there is a possibility of WARRANT MANIPULATION.
Investors with large capital will buy in HIGH VOLUME to move the price.
When the price moves, other investors will think the warrant is indeed profitable and start entering the market.
However, the large volume is actually a tactic for these big players to take profit.
That is why we need to analyse thoroughly before entering.
Warrants that are close to expiry usually experience WARRANT MANIPULATION, as mentioned above.
Therefore, when choosing a WARRANT, you need to refer back to our post on "5 THINGS YOU MUST KNOW BEFORE BUYING WARRANTS".
Do you think there are other warrant-related risks that we have not covered?
If so, feel free to share in the comments section.
If you have any other questions, do ask and we will try our best to answer them.
In our warrant series, we have produced several other articles to clarify common misconceptions about warrant calculations and the risks involved in warrant trading.
Here are some articles you can read:
The main risks include expiry date risk (warrants lose value as they approach maturity), issuer risk (the issuing company may fail to fulfil its obligations), and market risk (price manipulation by large investors). Understanding these risks is essential before trading warrants on Bursa Malaysia.
Yes, warrants can expire worthless if the underlying share price does not reach the exercise price before the maturity date. This is why it is crucial to check the expiry date and warrant premium before purchasing.
To reduce manipulation risk, avoid warrants that are close to expiry, analyse the trading volume patterns carefully, and always do your own research before entering a position. Refer to the 5 key factors to check before buying warrants.
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