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Pros and Cons of Stock Warrants

While stock warrants do provide a means of entering the share market without actually buying shares, they they do have pros and cons.

While stock warrants do have benefits they also have a downside that makes astute investors somewhat wary of purchasing them. Here are some pros and cons.

Pros:

* Buying stock warrants is much cheaper; it allows the investor to get shares in a company with less capital outlay. This is good if you are looking for capital appreciation as opposed to income.

* The percentage gain is often greater than if shares were purchased.

* Stock warrants have greater liquidity – at least at the present time. This is due to the promotion by marketers.

* The short to medium term often nets good capital appreciation.

Cons:

* Stock warrants can become worthless after they expire – not good if you are still holding them. Even if they were given for free as part of another deal there is that opportunity for gain lost.

* No dividends apply to stock warrants. So if you invest in stock warrants in blue chip industries you forego the dividend you would have got with buying the actual shares.

* When the prices of stock warrants change someone – buyer or seller – is going to be the loser.

So what is the best time or way to purchase stock warrants? If your assessment of the situation tells you that there is going to short or medium term gain you could buy stock warrants. You could also use them carefully by allotting a smaller percentage of your capital investment in stock warrants for the same financial benefit or risk that you would incur if buying the mother shares. Then you could invest your remaining (larger) portion of capital into something that is even better.

Mel writes about stock warrants among other finance related topics.

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