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Ambitious high school students do everything they can to stand out amongst the very crowded crowd of college applicants. Standardized testing is just one of many challenging hoops students have to jump through on their way to higher education. Which is why some students and their parents may be wondering exactly where their dream colleges stand on the age-old issue of ACT vs SAT.

While in many ways the ACT and SAT are similar exams, they have some differences that you’ll want to keep in mind when choosing which test to take. Keep reading to learn more about how these tests compare, which one you should take, and how colleges feel about these two exams.

Purpose, Structure, and Cost

The SAT and ACT are two exams that serve the same purpose. Colleges utilize both exams to determine admission and award merit-based scholarships. Both tests are similar in length and structure, with the SAT taking three hours and the ACT taking 2 hours, 55 minutes (without essay), and 3 hours, 40 minutes (with essay) to complete.

For the 2023-2024 school year, it costs $60 to register for the SAT. There are additional charges if you change test centers ($25) or you register late ($30). Your first four score reports are free if you order them within nine days after the test date. After that, any additional reports you want to send to multiple colleges cost $14 each.

The cost to register for the ACT for the 2023-2024 school year is $68.00 (with no writing) and $93.00 (with writing). There are additional charges if you change test centers ($42) or you register late ($36). Your registration fee covers reports for you, your high school, and up to four colleges (if you provide the codes when you register). Additional score reports are $18.00. To add or remove the writing test, the fee is $25.00.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

The Subject Matter

These two exams cover similar subject matter and include an optional essay portion, although there are some key differences worth noting when it comes to preparing to take these exams. The main difference between the ACT and SAT subject matter is that the ACT has a “science reasoning” section of and an optional essay, whereas the SAT doesn’t.

However, both exams cover topics relating to math reading, and writing type subjects. More specifically, the SAT covers “Reading” and “Writing and Language,” and the ACT covers “English” and “Reading.”

When it comes to the mathematics portion of the exam, the SAT focuses on arithmetic, algebra I and II, geometry, trigonometry, and data analysis. The ACT tests students on their arithmetic, algebra I and II, geometry, trigonometry, and probability and statistics knowledge. Each exam has differing calculator policies. For the ACT, students can use their calculator for all math questions. Whereas with the SAT, only select math questions allow calculator usage.

How Each Exam is Scored

Both the SAT and ACT have unique scoring systems. Here’s a bit of information on each.

How the SAT is Scored

The SAT is scored on a scale of 400 to 1600. Breaking down the scoring process a bit further, the SAT has not just a “total score,” but “section scores.” Each of the main sections, reading/writing and math, may be scored up to 800 points. These scores are then combined for the total.

Last but not least, students will receive subscores, evaluating their performance of certain or subject areas. These scores are included as a part of the total score, but this breakdown can be insightful for students looking to retake the test and improve their skill set.

Recommended: How to Help Your Child with SAT Practice

How the ACT is Scored

The ACT is scored on a scale of one to 36. The ACT scoring system begins by taking into account how many questions a student answers correctly. The “raw scores” which represent the number of correct answers on each test are then converted to “scale scores.” Each subject section—English, Math, Reading, and Science—receives a scale score.

The “composite score,” which ranges from one to 36, is an average of each subject test, rounded to the nearest whole number. The scoring process is completed after identifying the percentage of correctly answered questions.

Recommended: Ultimate College Application Checklist

Do Colleges Prefer the ACT or SAT?

Both the ACT and SAT are widely accepted by U.S. colleges and schools generally don’t have a preference for one over the othere. Many people believe that the SAT is more popular, especially with elite colleges, but that is a higher education urban legend.

There may, however, be some regional preferences between ACT vs SAT. College Raptor analyzed the numbers of students who applied to colleges with ACT or SAT scores (numbers that colleges and universities report to the government) and found that, while many states were split down the middle, a few lean more in one direction towards ACT or SAT. For example, Wisconsin leans heavily towards an ACT preference — there, 95.27% of applicants submitted ACT scores.

Knowing Which Test to Take

While some students opt to take both the SAT or ACT, some choose just one in order to focus on preparing for the test they believe they are more likely to score higher on. Neither test is generally easier than the other, but some students may find their different structures suit their needs better.

The ACT is considered by some to be more appealing to students with strong English skills as the exam focuses more on verbal skills, whereas the SAT may be a better fit for those who excel in math.

Taking a full-length practice test of each exam can give you a better idea of which test you’ll score higher on. Once you’ve determined which is a better fit, you can spend their time and resources preparing for just one test instead of two. If you feel comfortable preparing for and taking both exams, doing so can be beneficial as you will have two scores to choose between to send to colleges.


💡 Quick Tip: Federal student loans carry an origination or processing fee (1.057% for Direct Subsidized and Unsubsidized loans first disbursed from Oct. 1, 2020, through Oct. 1, 2024). The fee is subtracted from your loan amount, which is why the amount disbursed is less than the amount you borrowed. That said, some private student loan lenders don’t charge an origination fee.

Paying for College

The options don’t stop after you complete the test (or tests) of your choice. Once you use your solid scores to get into the college of your dreams, you and your family may be faced with some other big decisions, especially when it comes to paying for college.

Luckily, there are options — including grants, scholarships, subsidized loans, and even unsubsidized federal student loans — that can help offset the out-of-pocket costs. If you’ve exhausted those avenues and still have a funding gap, you may want to explore private student loans and or parent loans.

Private student loans are available through banks, credit unions, and online lenders. Unlike federal loans, applying for a private loan requires a credit check. Students who have solid financials (or a cosigner who does) typically qualify for the best rates and terms. Just keep in mind that private loans don’t come with the same protections, like government-sponsored forgiveness programs, that you get with federal loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIS0723024

Attending college is a big milestone that both parents and students look forward to for many months.

While this is a highly anticipated event, college move-in day can also be a very stressful and emotional day for both students and parents. Attending a college that is out of state can be another nerve-wracking factor.

Moving can be challenging, especially if it’s hot or you have to climb up several sets of stairs. Fortunately, there are several things you can do ahead of time over the summer that can help ensure the day goes as smoothly as possible.

Preparing for the Big Day

Getting organized beforehand is one surefire way to prepare for the big move as a college freshman. Here are a few ideas to help you and your child get ready for move-in day.

Getting Familiar with Dorm Room Rules

Being prepared and learning what the college dorms allow students to bring can relieve some potential headaches. Colleges typically post a list of items that students can bring and ones that are prohibited in the residence halls.

Sticking to the basics is a good start since your child can buy more items from a local store or have it shipped to them at a later date.

Recommended: College Essentials: What to Bring to College

Coordinating with Your Roommate

Recommend that your child contact their roommate over the summer and discuss their interests and what items each of them are bringing. This can be one way to help avoid bringing duplicates, especially for larger items like TVs or bean bags.

Another idea is to coordinate the time you are going to move in so you can assist each other during the process. This can also be helpful if the parents are interested in meeting each other.

Packing with Purpose

Packing for college can be a frustrating task, but one way to expedite the chore is to have your child label all the containers and boxes so you know what’s already packed and can easily find things once you arrive. If you have items that are more fragile, consider putting them into heavy plastic containers so they are less likely to be damaged during the move.

Also consider making a list of must-have items, to limit the chance that something important is forgotten. For example, bedding, computer, school supplies, a first aid kit, and basic tool kit — which can be extremely useful on move-in day.

If your child is attending a college that is out of state or in a different climate, you may have to build out a more weather-appropriate wardrobe. For instance, if your child is moving to a college in the Midwest from Florida, you might buy and pack weatherproof boots, jackets, scarves, gloves, and other clothing suited for colder temperatures.

If they are attending college in a warmer climate, consider packing more t-shirts and shorts and leave some of the sweatshirts and wool sweaters at home.

Recommended: College Planning Guide for Parents

Planning Travel Arrangements

Once you’ve organized and packed all of your child’s belongings, it’s time to decide how you’ll get everything to campus. This will likely depend on factors like how far away the school is.

Consider renting an SUV or a moving van if the university is within driving distance and you own a smaller vehicle. If you plan on driving, pack the car strategically, so items you’ll need first (like cleaning supplies), are easily accessible when you arrive.

If you’re planning to fly to the college, another strategy may be to mail some of the belongings to the residence hall ahead of time, if it is permitted.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

What to Expect on Move-In Day

While going to college is really exciting for your child and your family, consider limiting the number of people you bring with you on moving day. You know the saying “too many cooks in the kitchen,” well the same philosophy can apply to a move.

Having too many people could actually slow down or complicate the process. Plus, it’s likely that many students and their parents will all be in the residence halls at the same time. Dorm rooms can be pretty small and having more people in the space could create more chaos and tension.

Instead, consider planning a visit when there is more flexibility. Many colleges have a family weekend in the fall. This could provide an opportunity for a longer, more relaxing and fun visit, especially if grandparents, aunts, and uncles also want to tag along.

Since many students move in during late summer, it can help to be prepared for heat (and humidity, depending on the local climate). It’s likely going to be hot, especially if the residential dorm does not have central air conditioning and only window units or getting to a top floor requires traipsing up and down several flights of stairs.

Consider bringing a fan to help circulate some air while you get everything settled.

Doing all that heavy lifting is no easy task. Wear comfortable clothing and shoes for the move and bring another outfit to change into later as you tour the campus or grab dinner with your child.

Bringing water and snacks is generally a good idea too, especially if you are moving furniture and other heavier items. Putting the drinks in a cooler will help keep them cold, especially if the room does not have a refrigerator. Make sure you have enough for the roommate and their parents.

Determine whether the residence hall has a dolly or other items that you can borrow because they can help make the move easier. Signing up for those items early can help ensure that you can use them the day you move in. Otherwise, you can buy one from a local hardware store or split the costs with a roommate or another friend who is living in the same residence hall.

Students who have other friends who are also moving in during the same day might want to consider connecting beforehand so they can help each other move, especially bulky or heavier pieces of furniture.

During the unpacking process, your child might find that they brought too many personal belongings or packed things they either don’t actually need or don’t have room for.

For instance, if the roommate also brought a television and there is no room for two, you could pack yours up and take it home.

While you may be concerned about whether your child has enough necessities like sheets, toothpaste, and food, there are likely several stores on or near the campus.

If your student lives near a grocery or drugstore, they can buy other items later on or they can have the items delivered to them. Many retailers offer free shipping and stores at college campuses often have special offers suited for students.

Move-in day can be emotional, for everyone involved. As hard as it is to say goodbye, try not to hang around too long — let your child adjust to their new surroundings, hang out with their new roommate, make new friends in their residence hall, and get ready for their first day as a freshman.


💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

Considering SoFi Private Student Loans

As you gear up for move-in day, you may have other concerns, including how you’re going to cover the cost of your child’s education. Financing your child’s education is a large responsibility and can be complicated. While there are some ways to prepare for college, like filling out the FAFSA to apply for federal aid, some families do not receive enough to pay for tuition and room and board entirely.

After exhausting federal aid options, you might want to explore the option of private student loans. You can be the cosigner of your child’s application for a private student loan. You also have the option of taking out a private parent student loan. Just keep in mind that private student loans don’t offer the same protections, like government-sponsored forgiveness programs, that come with federal student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIS0723025

Stock warrants are similar to options: A stock warrant offers investors the right, but not the obligation, to buy or sell a stock at a specific price by a set date.

That said, while it’s fairly easy to come by stock options, stock warrants are less common, especially in the U.S. Some investors may be familiar with stock warrants because they’re typically part of SPAC deals (special purpose acquisition company).

Although warrants and options do have some similarities (e.g. there are put warrants and call warrants), they also have substantial differences. Here’s what you need to know about how stock warrants work.

What Is a Stock Warrant?

Like a stock option, a stock warrant is a derivative contract that gives the holder the right, but not the obligation, to buy or sell the underlying security at the agreed-upon strike price on or before the expiration date of the contract.

Stock warrants are issued by the company that has the stock. They’re typically used as a way to raise capital, because the cost of the warrant (the premium) and the cost per share both flow to the company.

With U.S. warrants, the expiration date is the last date investors can exercise the warrant; with European-style warrants, the expiration date is the only date when investors can exercise their warrants. In the U.S. stock warrants typically don’t expire for a period of several years.

Investors pay a premium per share for the stock warrant (typically a fraction of the share price). Investors generally buy one warrant per one share of stock, but warrants can also be sold at a certain ratio, e.g. 4 to 1 (e.g. four warrants represent one share of the underlying security).

It’s important to know the terms of the warrant, so that you know what you’re buying, how much you’re paying, what it’s worth, and when the warrant expires.

Two Main Types of Warrants

Similar to options trading, investors can buy a call warrant or a put warrant. A call warrant allows investors to purchase shares from the company by the expiration date.

A put warrant allows them to sell the shares back to the company.

Stock warrants in general aren’t common in the U.S., especially with the decline of the SPAC market (more on that below). Put warrants tend to be less common than call warrants.


💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

The Value of Warrants

Warrants have intrinsic value and time value, similar to options. Intrinsic value is how profitable the stock warrant would be if the investor exercised it now.

The time value of a warrant, put simply, is a function of how volatile the underlying shares are, and how much time is left until expiration. The more time the warrant has until it expires, the more time it has (potentially) to rise in value.

That’s why stock warrants can be traded on the secondary market.

When an investor exercises a stock warrant in order to purchase shares, the company issues new shares, which are dilutive to the existing shareholders.

Pros of Stock Warrants

The primary advantage of stock warrants is that for a relatively small upfront investment, investors have the right to purchase shares of stock — which, if they are lucky, may increase in value and deliver a substantial profit. The downside is that the warrant can expire worthless.

However, there is an advantage in terms of time: Stock warrants are often long-term — some are five, 10, or even 15 years. Ideally then, investors can wait for the best time to exercise their warrants.

Given the longer time horizon before warrants typically expire, investors can trade warrants on the secondary market, assuming the warrant still has value.

Cons of Stock Warrants

The leverage offered by a warrant cuts both ways, giving investors the potential for big gains or big losses — so these contracts can be quite risky.

Also, an investor may be entitled to dividends or have voting rights when they purchase actual shares of stock. That’s not true when investors buy warrants. Warrants don’t pay dividends and don’t offer voting rights.

Profits from selling stock warrants are taxed as ordinary income, which can be a higher tax rate for investors vs. the capital gains rate.

The Complexity of Stock Warrants

Investors should bear in mind that, above all, stock warrants are not as simple as they can seem at first. In some ways the terms of stock warrants are more opaque than stock options.

If a stock pays dividends, that may lower the price of the stock warrant (as an inducement to investors, who won’t see dividends, but may see a higher payoff). But a stock warrant can also be structured so the share price incrementally rises over time, which may not be favorable to the investor.

Stock warrants are typically not considered very liquid, because there are so few of them.


💡 Quick Tip: If you’re an experienced investor and bullish about a stock, buying call options (rather than the stock itself) can allow you to take the same position, with less cash outlay. It is possible to lose money trading options, if the price moves against you.

Stock Warrants vs Stock Options

Warrants differ from options in a few important ways:

1.    A stock option is a contract entered into by two investors, whereas a warrant is issued by the company that issues the stock.

2.    Stock warrants also differ from options in that they can have expiration dates as far as 15 years in the future. Most options last for much shorter periods, and rarely more than three years.

3.    Warrants are a source of capital for the issuing company, whereas options are instruments traded between entities.

4.    Call warrants and options give the holder the right to buy a stock; puts give the holder the right to sell a stock. But there is a difference between put options and put warrants in that put options may be more advantageous because their price goes up when the stock price goes down. If you buy a put warrant from a company and the price goes down to zero, you may not be able to sell your stock back to the company.

How Do SPAC Warrants Work?

SPACs, which stands for special purpose acquisition companies, are shell companies that raise money by listing shares on a stock exchange, and then merging with private companies that wish to go public.

When it comes to SPACs, investors who buy in during the pre-listing process are given “units.” Each “unit” includes a share and a warrant or a fraction of a warrant. The warrants are meant to be additional compensation to pre-listing SPAC investors for agreeing to have their capital held in a trust until the merger.

SPAC Market Declines

While SPACs once saw considerable interest from investors only a few years ago, with billions flowing into these deals, SPACs are less common today. In 2022 alone, the number of SPAC mergers dropped by 22% — and the number of canceled SPACs doubled to about 55 last year.

In addition, institutional investors — hedge funds, mutual funds, and pensions — historically have had greater access to SPAC units, since units are allocated during the private placement stage of a SPAC deal.

This has been one of the criticisms lobbed at SPACs, with detractors arguing that it gives institutional investors a better risk-reward proposition than retail traders, who typically just buy regular shares in the market without the added potential value warrants can offer.

Recommended: SPAC vs. IPO

Example of Exercising SPAC Warrants

The SPACs’ shares “separate” from the warrants usually 52 days after the initial public offering or IPO. This allows unitholders to trade the warrants and shares separately. The fees for exercising or trading warrants can be more sizable than the fees for trading shares.

Here’s a case example of how an investor may exercise their SPAC warrant. A merger between the SPAC and the target company is completed, and 52 days later, the warrants become exercisable at their strike price, which is typically $11.50 in SPACs.

So let’s say the shares of the combined company are trading at $15, so higher than the strike price of $11.50. That means investors can exercise their warrants and buy additional shares at $11.50 and immediately sell them for $15.

The investor would then pocket the difference between the exercise price of $11.50 and the current share price of $15 for a tidy profit.

But if the share price is trading lower than the exercise price, the investor is in a wait-and-see situation — and if the share price never rises above the strike price, the warrants are essentially worthless.

Recommended: What to Know About SPACs Before You Invest in Them

Important Things to Know About SPAC Warrants

While SPAC warrants can be a lucrative opportunity, it’s also important to be aware that each SPAC and the terms of the warrant contracts need to be evaluated by investors on a case-by-case basis.

Remember, warrants offer an opportunity but they can also expire when worthless. For instance, it’s possible shares of the combined company never rise above the strike price of $11.50, making it impossible for investors to exercise the warrants.

Furthermore, the regulation of SPACs and their warrants could change. In April 2021, the Securities and Exchange Commission (SEC) changed how SPAC companies can classify warrants on their balance sheet. Many SPACs have considered warrants as equity. But under the new guidelines, in certain circumstances, SPAC companies need to classify warrants as liabilities.

Many SPACs in the pipeline have had to reevaluate their financial statements in order to make sure they’re in compliance with the new regulatory guidelines. Market observers interpreted the SEC’s move as an attempt to cool the red-hot SPAC market.

Why Do Companies Issue Warrants?

The reason that companies issue stock warrants is to raise capital without selling other bonds or stock. Selling warrants also protects the company’s stock from becoming diluted, as would happen with the issuing of new stock — unless or until investors exercise them.

Call warrants will dilute the shares on the market when investors exercise them.

Recommended: Understanding Stock Dilution

Because warrants are less expensive than the underlying stock, unproven companies will use them to entice new shareholders. The company makes money on the warrant sale, and on the exercise of the call warrant if the owner buys the underlying shares. And if the warrant expires, the company keeps the purchase price of the warrant.

A company may issue call warrants as a show of confidence for shareholders who want to hedge their holdings of that company’s stock. The company offers the hedge of the call warrant to reassure shareholders while raising capital from the sale of the warrant.

Sometimes, companies will also issue warrants as a way to raise capital during periods of turbulence. For example, some companies issue warrants if they’re headed for bankruptcy.

How to Find Warrants to Invest In

Not every publicly traded company offers warrants. In the U.S. the companies that tend to issue warrants are not big Fortune 500 corporations. Instead, they tend to be smaller, more speculative companies.

While there are some online databases of warrants, they’re not necessarily comprehensive and up-to-date. But if an investor has a company they’re interested in investing in via warrants, they can contact that company’s investor relations department. Investors can also go to the company website and search for the word “warrant,” or the company’s ticker symbol, followed by “WT.”

Some warrants can also be traded under the symbol that includes the underlying stock symbol with either a “W” or “WS” before it. Once an investor finds a warrant, most online brokerage accounts will allow them to buy and sell the warrant.

How to Use Warrants

For an investor who owns warrants, the first decision is when to exercise the warrant. For a call warrant, that’s when the stock price has risen above the warrant’s strike price. If it’s a put warrant, then it means the stock is trading below the strike price.

But a warrant holder has another option, which is to sell the warrant on the open market because warrants can be traded like options. This is one thing to consider if a call warrant is below the strike price. Even if it’s below the strike price, the call warrant may still have intrinsic value right up until it expires, though the market may offer you less for the warrant than you paid for it.

Even if the current stock price is higher than the strike price, an investor may choose to hold onto the warrant. That’s because the price could rise even higher before the warrant expires.

Whether buying, selling, or exercising a warrant, most brokers can help an investor get it done. Once purchased, a warrant will appear in a trading account just like a stock or option. But with warrants, like most financial derivatives, most brokers charge higher transaction fees. After the broker contacts the company that issued the warrants and exercises them, the stock will replace the warrants in the trading account.

Other Important Things to Know About Warrants

It’s important to remember that every company that issues warrants does it differently. One company may issue warrants in which five warrants can be exercised to obtain one share of stock. Another company may set the ratio at ten to one or twenty to one.

Some companies can adjust the strike price of their call warrants if the company pays out dividends. This is a twist that can benefit the buyer because warrants with a lower strike price are more likely to be exercised at a profit.

But not every contractual term in a warrant is necessarily to an investor’s benefit. There are some call warrants whose structure allows the issuing company to force investors to sell their warrants if the stock price rises too high above the warrant’s strike price. There are even some warrants whose strike price is designed to rise higher over time, which makes it less likely that an investor will be able to exercise the warrant at a profit.

While it makes sense to study and understand the fine print before buying a warrant or any investment, it’s especially important to double-check those terms and conditions when getting out of the investment, by exercising a warrant, for example.

The Takeaway

Stock warrants are a bit like their cousin, the stock option — but there are some key differences to know. These often-overlooked securities can offer investors an inexpensive way to bet on the long-term success of a company. But they come with potential pitfalls, particularly when it comes to the fact that they can expire if investors don’t exercise them.

Warrants have become more topical since they’re issued in SPACs, which have seen an equally dramatic rise and fall in popularity over the last few years. In SPACs, early investors often get a share plus a warrant or partial warrant. However, investors should evaluate each SPAC and warrant carefully given the potential volatility of these arrangements.

All of that said, stock warrants are relatively uncommon as investment vehicles in the U.S.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is an example of exercising a stock warrant?

Let’s say a stock is trading at $5 per share. The company decides to sell call warrants for a strike price of $5.50 per share. If the stock price rises to $6 per share before the expiration date, an investor could exercise their stock warrants to make $0.50 per share. If the stock price drops to $4.75/share, investors would have to wait rather than take the loss — and hope for a price increase before the warrant expires.

What is the purpose of a stock warrant?

Stock warrants are generally issued by a corporation as a means of raising capital. The company sells the warrants to investors, who have a specified period of time in which to exercise the warrant (say, five years). In the above example, the company would raise $0.50 per share by selling call warrants at a slightly higher price-per-share.

How can you find a stock warrant to invest in?

Trying to find a stock warrant over-the-counter from the issuing company isn’t impossible, but it can be difficult, especially because most companies don’t offer warrants. The easiest way to find stock warrants on the secondary market is to purchase them through your brokerage account. Warrants are indicated with a W or WS added to the ticker.

Photo credit: iStock/PeopleImages

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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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