DEFINITION of 'Covered Warrant'
A type of warrant that allows the holder to buy or sell a specific amount of equities, currency or other financial instruments from the issuer, usually a bank or a similar financial institution, at a specific price and time.
BREAKING DOWN 'Covered Warrant'
The main differences between normal warrants and covered warrants are:
1. Covered warrants can have a wide variety of underlying financial products. Normal warrants only have a company's stock as their underlying financial product.
2. Covered warrants are only issued by financial institutions. Normal warrants are only issued by the company that issued the underlying equity.
3. Covered warrants can have a variety of exercise prices depending on the conditions set forth by each issue. Normal warrants generally have only one exercise price.
4. Covered warrants allow the warrant holder to buy or sell the underlying asset. Normal warrants allow the warrant holder only to buy the underlying equity.