What Are Stock Warrants?

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Stock warrants are issued with a debt instrument that allows an investor to buy stock a later date for a higher price. Learn how companies use stock warrants to make debt seem more appealing with information from an investment manager in this free video on investing.

Part of the Video Series: Stocks & Mutual Fund Investments
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Video Transcript

OK a stock warrant is something that is issued with usually a debt instrument and a warrant really is the ability to buy a stock at a later date. It's usually at a higher price than the stock is trading so if you have a stock that's trading at 25 dollars today and you received a warrant to buy that stock in the future, you may see 30, 35 dollars as the price on it. So it's something that gives you the ability to buy that stock or own that stock in the future at the higher price for the future. But the, it's not something that's immediately tradeable, it's not worth anything right upfront because you're at a higher price. Now warrants are usually issued when someone buys either preferred shares or large amount of debt from a company and what the warrants are for is to make that debt seem more appealing. So if I buy a million dollars whether it be preferred shares or bonds from a company and take on that debt, they may issue warrants to go along with the debt instrument and give that to me as something where I can own shares in the company later on when the price increases or prospectively increases. So warrants are a little bit of a sweetener to debt instruments sometimes and it does allow the issuer maybe to bring down the interest rate that they're actually going to pay out but at the same time as a purchaser, I might see that as a good deal because I know I may be able to own equity in the company at a later date and they are in turn are able to get me to take on their debt.

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