What are Covered Warrants?
Covered Warrants (aka as turbos) have been available in Europe for almost two decades but have been introduced to the UK more recently. A warrant is an exchange traded derivative, analogous to ‘options’ traded in the USA. ‘Warrant’ in fact is simply another word for option, while ‘covered’ means that they are issued by a financial institution. The term ‘covered’ originates from the fact that when the issuer sells a warrant, they usually follow this up by hedging their exposure by buying the underlying security in the market. Short-term traders can buy and sell covered warrants on an exchange (such as the LSE) to speculate on rises or falls in underlying assets such as shares, indices, currencies and commodities. Like options your risk is limited to the initial amount you invest. They are in fact very similar to an options except warrants usually cover more markets – for instance as well as share warrants there are covered warrants for indices, currencies and some commodities. Unlike op
