Like a normal warrant, it allows the holder to buy or sell a specific amount of equities, currency, or other financial instruments from the issuer at a specified price at a predetermined date.
Unlike normal warrants, they are usually issued by financial institutions instead of share-issuing companies and are listed as fully tradable securities on a number of stock exchanges.
Covered warrants offer a flexible alternative to private investors who seek to gain the leverage benefits of derivatives, but who wish to limit their risk.
The main difference is that warrants tend to have longer maturity dates, typically measured in years instead of months (as with options), and are easier to access for individuals as they can be bought and sold in the same way as shares in the stock exchange.
[2] Thus, although warrants are classed as high risk they are not as risky as other investment products such as contracts for differences or spread betting in which an investor would have to pay for future losses.