Precious Metals Investments | Warrants

Contrary to options or OTC-options which are traded on stock exchanges, warrants are suited for the distribution in the retail-market since they can be traded in smaller batch sizes. Buy- and sell orders for warrants can be commissioned - just like buy- and sell orders for stocks - by indicating an ISIN (International Securities Identification Number) in an Order Management System (OMS). A connection to a Futures Exchange is not necessary.

Usually warrants certify the right to buy (Call Option Warrant) or sell (Put Option Warrant) a certain underlying asset at a price which was fixed/determined in advance. Comparable with uncertified options, certain warrants certify the right to exercise the warrant at the end of its lifetime (Euoprean warrant) or at any time during the warrant's lifetime (American Warrant). Typical underlyings are stocks, indices or currencies.

Beside these classic warrants (also called "plain vanilla"), other kinds of products are offered as well. An example would be options on the underlying's price range and so called knock-out options.

A major differnce between options trading and warrant trading is that short-selling warrants is forbidden.

Warrants in the commodity market

Just about one percent of the total turnover in warrants accounts for the commodity domain.
Warrants are offered on silver, gold, crude oil and sporadically on big mining companies.

What you have to keep in mind regarding warrants on commodities:

- Because of the fact that underlyings (e.g. gold & silver) are traded in USD, you must take fluctuations between two currencies into account, provided that you are integrated into a different monetary system.

- The spreads of Ask/Bid-prices (difference between price of purchase and price of sale) are considerably high. Furthermore the respective issuer of the warrant widens the spread when it comes to heavy ups and downs in the price of the underlying asset.

- Trading warrants on gold and silver only makes sense in times of heavy fluctuations of the underlying's price. Otherwise volatility, loss of time and spread reduce the profit.

- A total loss is possible as with any other warrant!

Summary:
- warrants aren't suited for the average investor, high risk and total loss is possible
- not suitable for an investment in times of crisis
- overproportional profits are possible
- pay attention to the lifetime, loss of time and the underlying
- limits are important because of high spreads and small trading volume
- take into account differing times of Trading of the respective issuer
- Please take account of the Disclaimer, as with any other kind of investment/asset!