American Warrants versus European Warrants

Warrants can be divided into American or European types, based on the way they are exercised.

American Warrant - Holder can exercise the right to buy (or sell) the underlying at any time between the listing date and the expiry date.

European Warrant - Holder can exercise the same right only at maturity.



American Warrant

American Warrants can be exercised at any time between the listing date and the expiry date.

They seem to be more flexible.  However, in practice, few investors choose to exercise their warrants and hence, this feature does not matter much.

It is often more beneficial to sell the warrant back to the market before expiry rather than holding it until the date to exercise (the issue of "time decay").


European Warrant

European Warrants are settled by cash rather than physical delivery.

This means that if the warrants are in the money, the issuer will calculate and pay the difference between the settlement price of the underlying and the strike price of the warrant.

Cash settled warrants are automatically exercised, there is no need for the issuer to serve any notice of exercise.