A warrant is a security which is based on stocks. It gives its holder the right to purchase the underlying stock at a predetermined rice within a predetermined time frame. However, the holder is not obliged to purchase the underlying assets.

In exchange for the guarantee of being able to purchase underlying assets, investors pay a markup on the actual going price of underlying assets. Typically, warrants are issued directly by companies or financial services providers, rather than by stock exchanges. Because warrants are long-term contracts, they are often traded at stock exchanges or over the counter (OTC).

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.