Structured warrants provide a way for investors with either bullish or bearish views to participate in local and global markets. With warrants, investors may use a smaller initial investment to make use of the leverage effect to participate in market movement.

Apart from warrants that track local underlying, there is also a range of warrants that track overseas underlying, such as indices.

Index warrants can be easily traded during Singapore trading hours through a broker, with liquidity provided by the issuer. There is a range of warrants related to foreign indices listed on the Singapore Exchange (SGX).

Besides the Straits Times Index and the

Hong Kong Hang Seng Index,

Deutsche Bank has a range of index warrants related to

Japan’s Nikkei 225 and the

United States Dow Jones Industrial Average Index on SGX.

As with other warrants, index warrants have a gearing effect, which give investors greater exposure to potential price movements of an asset. Potential gains or losses are increased as a result of gearing due to the leverage effect.

Investors can thus use these instruments to participate in both bullish and bearish market movements.

However, there is a foreign exchange risk, as the warrants are priced in Singapore dollars and the underlying index is in a different currency. Hence, fluctuations in the exchange rate may affect the warrant price.

Investors should also note that when foreign indices are closed for a holiday on a Singapore trading day, the market maker will not provide liquidity, as there is no market in the foreign index.

Index warrants are also affected by the same external factors as all warrants, such as changes in implied volatility and time decay.