Companies offer warrants and convertible securities to spur investments. Investors gain opportunities for low-risk investment as a result. Warrants and convertibles, though similar in objective, differ in several regards.
Warrants are a fixed price on company stock, for a predetermined period of time. For example, a stockholder could be offered a warrant of $2 per share for one year. Even if the stock rises to $5 per share, an investor can still purchase at the $2 rate, making an immediate profit. Convertible bonds do not have a fixed price term.
Convertible bonds mature and are able to be cashed in and treated as a regular bond would; however, they can also be converted into shares of company stock. Should the convertibles be issued as preferred stock, investors have the option of converting shares to common stock as well. Warrants deal with stock prices, and shares cannot be converted to other securities.
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Convertible securities are one-time investments. Investors purchase more stock at a later date to maximize the profitability of a warrant.
Investors typically view convertible securities as long-term options. Warrants carry an expiration date and, therefore, are considered short-term in comparison.