Warrants & Call/Put Warrants: A Dangerous Trap for New Investors
•By Neo Capitalist
Artikel ini juga tersedia dalam Bahasa Melayu
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In the world of stocks, warrants and call warrants often appear tempting – their prices are cheap, their movements are aggressive, and the potential profits seem enormous. However, for new investors, both these instruments can become high-risk traps.
Warrant: Issued by the company itself, granting the holder the right to purchase the parent shares at a fixed price within a specified period.
Call Warrant: Issued by financial institutions (not the parent company), and does not involve actual share ownership. It is a form of structured product and typically expires worthless if not utilised correctly.
Both types of warrants have an expiry date. If you hold them too long without taking action, they will expire and become worthless.
Warrants and call warrants can lose value far more quickly than the parent shares. In a single day, their value can drop 20–50% if the market moves against you.
Call warrants are based solely on share price movements. You do not own any physical asset or hold any rights as a shareholder.
Due to volume and institutional control, call warrant prices can be manipulated, causing retail investors to easily get trapped at high prices.
It is like buying shares on margin, but without proper understanding of risk management, new investors can suffer massive losses in a very short time.
The majority of new investors who enter the warrant market end up suffering losses because:
Warrants and call warrants are only suitable for investors who:
Warrants and call/put warrants are not instruments for new investors. A cheap price does not mean it is safe. Focus first on actual shares, understand the fundamentals of the market, and build experience before exploring these high-risk instruments.
A warrant is issued by a listed company as part of a corporate exercise, whereas a call warrant (structured warrant) is issued by an investment bank. Both grant the right to purchase shares at a specific price, but their terms and risks differ.
Warrants have an expiry date, and if not converted before that date, they become worthless. Furthermore, their price movements are more volatile compared to ordinary shares, and many new investors are deceived by the cheap price without understanding the actual risks involved.
Yes, you can lose 100% of your capital if the warrant expires out-of-the-money. Unlike ordinary shares which still retain value as long as the company is operating, warrants can become completely worthless.
You should only consider warrants after having at least 2–3 years of experience investing in ordinary shares, a solid understanding of both technical and fundamental analysis, and the ability to manage risk with strong discipline.
Before exploring high-risk instruments such as warrants, make sure you have mastered the basics of stock investing. Start with the right steps to build a solid foundation.
Open your CDS account today through our step-by-step guide here to start investing in the stock market.
Download the free stock basics ebook to learn the fundamentals of stock investing from scratch.