How Stock Warrants and Common Stock Differ

Owning a stock gives you an ownership interest in the company the stock represents. You are entitled to vote on corporate initiatives, who will serve on the board of directors, and you can receive dividends if the company pays a dividend to stockholders. Stock warrants do not entitle you to any of these rights, but they do give you other important rights.

Stock warrants are actually more like options than common stock. If you understand call options and how they work, then you are well on your way to understanding a stock warrant. But if you don’t know what a stock option is, no problem, we’ll go over what rights you have when you own a warrant. Basically, owning a stock warrant gives you the right to buy a certain number of common stock shares, at a predetermined price, for a predetermined amount of time.

Stock warrants trade on an exchange just like common stock. Warrants trade in shares as a stock does, not contracts as a call option does. You can look up a warrant symbol in the same way you look up a stock symbol, and you can trade warrants through an online broker in a regular brokerage account.

A warrant’s price, and whether it increases or decreases in value, is dependent upon the price of the common stock. Each warrant has a strike price and an expiration date, which determines how they trade in relation to the common stock.

Warrants are generally issued with an expiration date that is between three and five years of the original issue date. There may also be a time period immediately after issue in which the warrants are not exercisable. For example, a warrant may be issued with this description: "This warrant is exercisable for a term of three years beginning six months from the issue date."
Warrants, like common stock, can be issued for a variety of reasons:

Warrants can be issued when a company goes public, so that the warrants begin trading at the same time as the stock IPO.
Warrants can be issued after a company is public to raise additional capital.
A court may order the issue of warrants as part of a settlement or decision of the court, and
Warrants may be granted in a takeover or spinoff.
Warrants can be used by an investor as an investment vehicle, just like a common stock. A warrant provides leverage, like a call option, and will rise more in percentage terms than the common stock.Of course it will decrease in value more as well if the common stock price drops.

Trading and investing in warrants can be a very lucrative endeavor for those who understand the ins and outs of the warrant instrument.