DEFINITION of 'Currency Warrants'

A financial instrument used to hedge currency risk or speculate on currency fluctuations in foreign exchange markets. A currency warrant, like other option derivatives, gets its value from the underlying exchange rate - the warrant's value goes up and down with fluctuations in the underlying exchange rate. Also, currency warrants are priced the same way as currency options and allows holders the right to exchange an amount of one currency into another currency at a specified exchange rate before or on a specified date.

BREAKING DOWN 'Currency Warrants'

Typically, warrants are used to manage risk if you have exposure to a certain currency and wish to hedge against potential losses. The other common use of currency warrants is to speculate on the movement of exchange rates and earn a profit if your view is correct. The leverage in currency warrants allows users to gain more exposure to exchange rate movements.

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RELATED FAQS
  1. Are warrants more desirable than options?

    Understand what stock warrants are, the differences between warrants and options, and learn whether warrants or options are ... Read Answer >>
  2. Is there a secondary market for warrants?

    Find out how to trade warrants on the primary market, the secondary market and the over-the-counter market, including how ... Read Answer >>
  3. Are warrants traded by brokers?

    Learn about the role of investment brokers in trading warrants, both in normal stock exchanges and over-the-counter derivatives ... Read Answer >>
  4. Can warrants be written on any security?

    Read about the different kinds of securities that may have warrants written on them, including which types of warrants are ... Read Answer >>
  5. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Answer >>
  6. How are stock warrants different from stock options?

    A stock option is a contract between two people that gives the holder the right, but not the obligation, to buy or sell outstanding ... Read Answer >>
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