If you've been exploring the Malaysian stock market, you've likely come across structured warrants — one of the most actively traded instruments on Bursa Malaysia. In 2024, the average daily trading value of structured warrants more than doubled, surging from RM56 million to RM123 million. Clearly, more Malaysian traders are discovering the power of structured warrants.
But what exactly are structured warrants? How do they differ from company warrants or options? And should you be trading them?
As someone who spent 15 years at Bursa Malaysia heading Investor Education, and before that worked as a structured products and derivatives trader at OCBC Bank, I've seen structured warrants from every angle — as a product developer, a regulator, and a trader. In this guide, I'll break down everything you need to know in plain language.
What Are Structured Warrants?
Structured warrants (also called structured warrants or 结构性凭单 in Chinese) are financial derivatives listed on Bursa Malaysia that give the holder the right — but not the obligation — to buy or sell an underlying asset at a predetermined price (called the exercise price or strike price) before or on a specified expiry date.
The key characteristics that define structured warrants in Malaysia:
- Issued by third parties — Structured warrants are issued by qualified financial institutions such as investment banks (e.g., Macquarie, Kenanga, RHB, CIMB, Maybank, Hong Leong), NOT by the underlying company itself
- Cash-settled at expiry — Unlike company warrants, structured warrants are settled in cash. No shares change hands. If your warrant is "in the money" at expiry, you receive the cash difference
- Short-term instruments — Structured warrants typically have a lifespan of 3 to 12 months. They are designed for short-term trading, not long-term holding
- Leveraged exposure — Because warrants cost a fraction of the underlying share price, they offer leveraged exposure to price movements
- Limited downside — Your maximum loss is the premium you paid. You can never lose more than your initial investment
"Structured warrants are one of the best trading instruments on Bursa Malaysia. Essentially, buying and selling structured warrants is trading the expected short-term price movement of the underlying asset." — Warren Mak, Nanyang Siang Pau column
How Do Structured Warrants Work on Bursa Malaysia?
Structured warrants on Bursa Malaysia work through a market maker system. Here's the mechanism:
- Issuance: A financial institution (the issuer) creates and lists structured warrants on Bursa Malaysia, specifying the underlying asset, strike price, expiry date, and conversion ratio
- Market Making: The issuer acts as a market maker, continuously providing buy and sell prices to ensure liquidity. This is critical — market makers buy and sell based on their market-making obligations, not based on their views of the underlying stock
- Trading: You buy and sell structured warrants through your normal stock trading account (CDS account), just like buying shares
- Settlement: At expiry, if the warrant is "in the money," you receive the cash settlement automatically. If it's "out of the money," the warrant expires worthless
Currently, there are 6 warrant issuers in Malaysia. However, only two — Macquarie and Kenanga — provide price matrices to help traders evaluate fair pricing. This is an important consideration when choosing which structured warrants to trade.
Call Warrants vs Put Warrants
There are two types of structured warrants in Malaysia:
Call Warrants (认购权证)
A call warrant gives you the right to buy the underlying asset at the strike price. Call warrants increase in value when the underlying asset's price rises. Use call warrants when you're bullish — when you expect the stock or index to go up.
Put Warrants (认沽权证)
A put warrant gives you the right to sell the underlying asset at the strike price. Put warrants increase in value when the underlying asset's price falls. Use put warrants when you're bearish — when you expect the stock or index to go down.
Put warrants are also powerful hedging tools. If you hold a portfolio of Malaysian stocks and are worried about a market downturn, buying put warrants can protect your portfolio — similar to buying insurance. As I wrote in my Nanyang Siang Pau column: the best hedging tool for HSI call warrants is HSI put warrants.
This dual capability — profiting from both rising AND falling markets — is what makes structured warrants so versatile compared to simply buying stocks.
Key Factors That Affect Structured Warrant Prices
Understanding what drives warrant prices is essential before you start trading. Five key factors determine the price of a structured warrant:
1. Underlying Asset Price
The most direct factor. When the underlying share price moves in your favour (up for calls, down for puts), the warrant price increases.
2. Strike Price (Exercise Price)
The relationship between the current share price and the strike price determines the warrant's "moneyness":
- In-the-money (ITM): Call warrant where share price > strike price (or put where share price < strike price). More expensive but lower risk
- At-the-money (ATM): Share price ≈ strike price. Balanced risk-reward
- Out-of-the-money (OTM): Call warrant where share price < strike price. Cheaper but higher risk of expiring worthless
3. Time to Expiry (Time Decay)
This is where many beginners get burned. Structured warrants lose value every day due to time decay (also called theta). This decay accelerates sharply in the last 30-45 days before expiry. Even if your directional view is correct, you may lose money if the market doesn't move fast enough.
4. Implied Volatility
Higher volatility in the underlying asset increases warrant prices (both calls and puts), because there's a greater probability of larger price movements. When market volatility spikes — like during the August 2024 panic selling — warrant premiums can surge dramatically.
5. Effective Gearing
Effective gearing tells you how many times the warrant price will move relative to a 1% change in the underlying asset. For example, a warrant with 8x effective gearing will move approximately 8% for every 1% move in the underlying stock.
Why Are Structured Warrants Popular in Malaysia?
- Leverage with limited risk: Get amplified returns with your maximum loss capped at the premium paid
- Profit in both directions: Use call warrants for bullish bets, put warrants for bearish bets or hedging
- Low capital requirement: Start trading with much less capital compared to buying the underlying shares
- Access to HSI: Trade Hong Kong Hang Seng Index warrants directly on Bursa Malaysia without needing an overseas account. HSI warrants are among the most actively traded structured warrants in Malaysia
- No stamp duty: Structured warrants are exempt from stamp duty on Bursa Malaysia
- Explosive growth: Daily trading value surged from RM56 million in 2023 to RM123 million in 2024, showing massive and growing trader interest
Common Mistakes Beginners Make with Structured Warrants
Based on my 32+ years in the market and having taught thousands of students, here are the most common mistakes I see:
- Holding warrants to expiry — Structured warrants are short-term trading instruments. Most successful traders exit well before expiry to avoid accelerated time decay
- Ignoring time decay — Every day you hold a warrant, it loses time value. This is the "silent killer" of warrant profits
- Choosing illiquid warrants — Avoid thinly-traded warrants. Compare by trading value (volume x average price), not just volume alone
- Confusing company warrants with structured warrants — These are fundamentally different instruments. Read my detailed comparison in Structured Warrants vs Options
- Over-leveraging — Just because warrants are cheap doesn't mean you should allocate all your capital to them. Proper risk management is essential
- Trading without a plan — Emotional decisions driven by fear and greed are the top reason traders lose money, even when they have the right market view
Who Are Structured Warrants Suitable For?
Structured warrants in Malaysia are suitable for:
- Working professionals who want to trade actively but have limited time — warrants offer short-term opportunities that don't require constant monitoring
- Short-term traders looking for leveraged exposure to Malaysian stocks and the HSI index
- Portfolio hedgers who want to protect existing stock holdings during uncertain times using put warrants
- Experienced traders seeking to amplify returns with defined risk
Structured warrants are NOT suitable for long-term investors looking to buy and hold, or for people who cannot afford to lose their investment capital.
Frequently Asked Questions
What are structured warrants in Malaysia?
Structured warrants are financial derivatives listed on Bursa Malaysia, issued by third-party financial institutions. They give holders the right — but not obligation — to buy (call warrant) or sell (put warrant) an underlying asset at a predetermined price before expiry. They are cash-settled, meaning no shares change hands at expiry.
How much money do I need to start trading structured warrants?
Structured warrants can be purchased for as little as a few sen per unit (minimum board lot is 100 units). However, experienced traders recommend starting with at least RM1,000-5,000 for proper position sizing and risk management.
What is the difference between structured warrants and company warrants?
Company warrants are issued by the company itself, typically alongside rights issues, and convert to shares at expiry. Structured warrants are issued by third-party financial institutions, are cash-settled at expiry, and are designed for short-term trading.
Can I lose more than my investment in structured warrants?
No. Your maximum loss is limited to the premium (price) you paid. Unlike short-selling or margin trading, you cannot lose more than your initial investment.
What are HSI structured warrants?
HSI structured warrants are warrants based on the Hong Kong Hang Seng Index, listed on Bursa Malaysia. They allow Malaysian traders to gain leveraged exposure to the Hong Kong stock market without opening an overseas account. HSI warrants are among the most actively traded structured warrants in Malaysia.