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Warrants Meaning: A Plain-English Definition

The warrants meaning in finance, with a worked warrants example, company warrants vs structured warrants, and what Covered Warrants means.

By warrants.asia Editorial Team · Published July 14, 2026 · Updated July 18, 2026

Warrants meaning

A warrant is a security that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a fixed strike price on or before a set maturity date. This is the warrants meaning in finance whether it's a company warrant or an exchange-listed structured warrant — the core mechanic (a right without an obligation, priced against a strike and an expiry) is shared across both, even though who issues them and how they settle differs substantially.

"Right, not obligation" is the phrase that separates a warrant from a forward contract or futures obligation: a warrant holder who is out-of-the-money at expiry simply lets it lapse, losing only the premium paid, rather than being forced to complete an unfavorable trade.

A worked warrants example

Take a call warrant on Stock XYZ with a strike of RM5.00, an entitlement ratio of 4 (four warrants convert into one XYZ share), bought for a premium of RM0.15 per warrant. If XYZ trades at RM5.50 at maturity, the warrant is RM0.50 in-the-money; divided by the entitlement ratio of 4, that's a payout of RM0.125 per warrant — in this case actually below the RM0.15 premium paid, so the position shows a small loss despite finishing in-the-money, because the payout didn't clear the entry cost.

Push the same example further: if XYZ instead finishes at RM6.00, the warrant is RM1.00 in-the-money, paying out RM0.25 per warrant against a RM0.15 premium — a 67% return on the warrant versus a 20% move in the underlying itself, which is the leverage effect in numbers. This is exactly why the entry premium, not just the direction of the underlying, determines whether a warrant position is actually profitable at expiry.

Company warrants vs structured warrants vs Covered Warrants

Company warrants are issued directly by a business, often attached to a bond or rights issue, as a way to raise capital or sweeten a financing deal — exercising one typically means the company issues new shares, which dilutes existing shareholders. Structured warrants, by contrast, are issued by a third-party financial institution over an existing listed stock or index; exercising (or being cash-settled) never creates new shares in the underlying company, so there's no dilution.

"Covered Warrants" is another name — common in the UK, Singapore, and parts of Asia — for the same structured warrant product described throughout this site, so-called because the issuer "covers" (hedges) its own exposure by holding an offsetting position in the underlying, rather than being economically short the position it has sold to the warrant holder.

FAQ

What is the warrants meaning in simple terms?

A warrant is a derivative security that gives the holder the right, but not the obligation, to buy (call warrant) or sell (put warrant) an underlying asset at a fixed strike price before a set maturity date.

Are Covered Warrants the same as structured warrants?

Yes — "Covered Warrants" is another name for the same structured warrant product, used in the UK, Singapore, and parts of Asia, so-called because the issuer hedges ("covers") its exposure.

Do company warrants dilute shareholders the way structured warrants do?

Company warrants can dilute existing shareholders because exercising them typically creates new shares. Structured warrants never dilute the underlying company, because they're issued by a third-party bank and cash-settled, not settled by issuing new shares.