A DERIVATIVE THAT covers all the bases


THERE was a time when people were frightened to enter into investments. The financial crisis meant that many investors took a painful hit, and elected to steer clear of the markets. But 18 months on, and investors are starting to come back. As before, many canny traders use spread betting as their preferred tool for playing the markets.

But there are alternatives. Covered warrants for example, have many of the up-sides of spread betting, without some of the negatives. For instance, covered warrants are geared products, just like spread bets and CFDs but, unlike those instruments, with covered warrants the risks are strictly limited. The most you can ever lose on a covered warrant is your original stake.

Also, you can hold covered warrants inside a self-invested pension plan (SIPP) but you can’t hold spread bets. Covered warrants are quoted on the London Stock Exchange and can be traded through your broker. They offer all the benefits of a listing on a regulated exchange: transparency, liquidity and a regulatory framework.

Transparency is provided by the centralised listing and the regulatory framework ensures that the issuer provides liquidity during the whole lifetime of the covered warrant. This means that throughout the trading day you are always able to obtain a price and therefore trade a covered warrant.

Financial investors should remember that spread betting is far from being the only game in town.