A stock warrant refers to a right given by an issuing company to an investor to buy stocks at a given price during a certain period of time up to a given date.
Many people do not differentiate between warrants and options but, the easiest way to tell them apart is to remember that warrants are only issued by the issuing company.
Options on the other hand are freely given in the stock market by investors.
Another way in which the two differ is on the fact that, warrants are issued at the point of transaction, directly by the company that is issuing the securities.
On the other hand, when options are issued, they can be transferred from one investor to another, which does not apply for their counterparts.
Third, warrants are a means of raising money for many companies because they receive money at the point of issuing the warrant.
The fact that they are issued at very low prices makes them very affordable and attractive to many investors and hence the company is able to make a lot of money in the process.
Their life is also longer than that of an option; they can last up to 15 years and many investors who seek long term investments prefer them to options.
In as much as the stock warrants come with the advantage of low prices and are long term investment, they are also faced with their own limitations.
One disadvantage is that, the holder does not have any voting, share holding or dividends rights.
As such, the investor has no say on how affairs are run in the company.
The value can also drop to zero and this would leave the investor with no redemption right if this were to happen.