Guys, I was wondering what the difference btw a warrant and an ETF is? Lets take an example: i.e. lets look at an ETF that replicates GOLD, simple vanilla delta one...with the ETF you simply participate in the direction of the underlying. On the other hand, you have a warrant, zero strike call, also giving you the same performance on the underlying: GOLD. why would someone invest in an ETF or the warrant? what am I missing? Tx for your input and guidance! Rgds
The main difference in this case would be credit risk. An ETF (a true fund not an ETN - exchange-traded note) doesn't have credit risk in case the fund manager goes bust as the assets of a fund are segregated. A warrant is issued by some institution, usually a bank, and therefore carries credit risk of that bank. If the bank goes bust then your warrant is worthless.
well in my view the credit risk is minimal. The main diff is TIME. warrants work like options, ETFs like a stock with all the implications
Credit risk is minimal!? Think Lehman Brothers, Bear Stearns, AIG (although this one was saved),... Time is not an issue if its a long-term warrant.