[1] They provide the right, but not the obligation, to buy (call) or sell (put) a quantity of stock (1 contract = 100 shares of stock), at a set price (strike price), within a certain period of time (prior to the expiration date).
Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends.
It can be used by investors to obtain the upside of equity-like returns while protecting the downside with regular bond-like coupons.
Their performance is similar to that of the underlying equity itself, although as futures contracts they are usually traded with greater leverage.
Besides diversification and tax benefits, equity swaps also allow large institutions to hedge specific assets or positions in their portfolios.