Trade Canadixan Warrants Online
Hello, this is Dudley Pierce
Baker and I welcome you to my website and specifically to this
article which will give you the basics of warrants, how to
trade them and why warrants should be included in your
portfolio.
Understanding Warrants
Did you know
that warrants have been in existence for many decades but very
few investors know about them? Why? Unfortunately, very few of
the professional newsletter writers and analysts understand them
so they do not write about them. Are warrants that difficult to
understand? Of course not; it’s just that one needs to take
some time to learn and understand this incredible investment
vehicle.
Have you
ever participated in a private placement of shares in your
favorite mining company? If you, so probably received some
warrants in this private placement and a good chance you did not
even understand what you received.
So let us
give you a brief introduction to warrants.
A warrant
is a security (like an option) giving the holder the right, but
not the obligation, to purchase the underlying stock at a
specific price, within a specified time period. Sounds very much
like a call option or LEAP, doesn’t it? Very much so.
Actually
warrants are issued by a company usually in connection with a
private placement or a financing arrangement and many of the
warrants issued will remain privately held and will never trade
in the open marketplace.
Fortunately, there are many warrants that trade on the Toronto
Exchange and a few in the United States on the NYSE and the AMEX
and many others are traded in the U.S. OTC market with assigned
symbols. As an individual investor, your objective, in our
opinion, should be to trade the warrant, without an intention to
exercise the warrant.
Currently there are many warrants trading with expiration dates
out to the year 2012 (one out to 2017) and though warrants
expiring within, say, 2 years, may possess great upside leverage
and potential for gains, they also pose a greater risk.
Therefore, we personally suggest that investors focus their
attention on those warrants which have a remaining life of at
least 2 years before the expiration.
So, why the
interest in warrants? The owner of the warrant receives none of
the benefits of ownership of the common stock of a company. He
cannot vote, and he does not receive any cash dividends.
Therefore, why would an investor want to buy an option (warrant)
to buy something instead of buying the thing itself?
The essence
of the answer is that the anticipated gain on the warrant must
be greater than the anticipated gain on the common stock.
Leverage, or at least potential leverage, is the prime reason an
investor would be interested in warrants. This more rapid
growth in the value of the warrant relative to the common stock
is called leverage. Without this possibly of such leverage the
investor would buy the common stock.
As with any
investment you must decide how much of your portfolio to
allocate to different sectors, different shares, ETF’s, mutual
funds, gold bullion, etc.
Even though we personally view ‘long-term warrants’ as
investments (as opposed to speculation), we find an allocation
of 10% to 20% maximum of your portfolio as a reasonable
allocation of your total dollars to this investment vehicle.
To summarize, an investor may wish to purchase a warrant which
is the option (the right) to purchase the common stock of a
company. He may prefer to purchase the warrant instead of the
common stock because the warrant offers more potential gain,
that is, the warrant offers the investor leverage. Using a
portfolio allocation of 10% - 20% and buying long-term warrants
on some of your favorite mining shares, you are now in the
position to capture some incredible potential gains in this bull
market in the natural resource and commodity sector.
How to Trade Warrants
Are you
frustrated with your current brokerage firm because they don’t
know anything about Canadian mining shares and warrants? They
don’t think it is such a good idea to own such shares/warrants
because they are supposedly too risky (even though you know
better)? And, to top it off, they don’t know how to go
about placing your orders and, as such, refuse to accept your
orders?
Ah, to be
a Canadian investor who can purchase shares of Canadian
companies and their warrants with ease online or through their
regular stockbroker.
The
opportunities are awesome with Canadian mining shares and
warrants but most investors have not had the resources and
knowledge as to how to participate in these exciting
investments,
until now.
If your
U.S. brokerage firm will not execute your orders for the
Canadian stocks and warrants you want to buy we would like to
suggest you consider doing business with
PennTrade in addition to
NetVest that we have been using for many years.
We are
excited to share with you,
PennTrade. They are the online trading division of
Pennaluna & Company which has been in business since 1926. They
are located in the heart of mining country, Coeur d’ Alene,
Idaho. The back office and clearing services are performed by
National Financial Services which also does NetVest’s.
Commissions are $29.95 per trade with the 10th trade
free. Remember, with warrants, we suggest you take a position
as an investor and focus on those warrants which have a
remaining life of at least 2 years so commissions should not be
a major consideration in your buying decision.
Approximately 50% of the Canadian warrants trading have been
assigned U.S. symbols to facilitate trading in the U.S. The
remainder requires calling the broker to place the order using
the cusip number. This has never been an issue for me at
NetVest and I will continue to maintain my account with them but
I have opened an account at PennTrade and will do my online
warrant trading with them. If you have opened an account at
NetVest based upon our previous advice, great. There is no
reason for you to switch unless you wish to do all of your
trading online. Both firms offer a great service and reasonable
commissions.
International Investors:
PennTrade
will also allow you to open an account with slightly more
information from you. Please see their
website for details.
________________
Our
challenge has previously been two-fold:
1. To furnish knowledge and information on warrants
2. To assist investors worldwide in how to trade warrants
Mission Accomplished!
We now
have a free
Learning Center to assist with educating the investment
community regarding the incredible opportunities that warrants
can provide. In addition, for our subscribers, we strive
to furnish the best database for the warrants with the most
detailed of information and leverage calculations for your
convenience.
And now
we make it easy for U.S. investors to purchase Canadian shares
and warrants by suggesting they open an account at
PennTrade to facilitate their online trading
of all Canadian shares and warrants.
Now, it is up
to you!
We will
continue to strive to improve our website and information which
we furnish to investors but you must make the decision and
execute the trades to make it happen.
Dudley Pierce Baker
Owner/Editor
PreciousMetalsWarrants
Footnote:
We have no
financial interest in, nor arrangements with PennTrade or
NetVest, other than suggesting the best brokers, to our
knowledge, to assist with your purchases of Canadian shares and
warrants.
