High Risk, High Return: What Is an ELW?

In the stock market, there is an investment product called ELW that has two sides: you can aim for big returns with a small amount of money, but the risk is just as high.
It is a product that is very unfavorable to investors
Paradoxically, we're introducing it to tell you not to invest in it.
Today, keeping complicated financial terms to a minimum, let's briefly look at the basic concept and features of ELW.

What is an ELW?
An ELW (Equity Linked Warrant) is a security that uses a specific stock or stock index (the underlying asset) as its base and grants the right to buy or sell it at a predetermined price up to a certain point in the future.
It works on the same principle as options in derivatives, but the important difference is that it is issued directly by securities firms, not by the exchange.
Along with ETFs and ELS, it is one of the popular investment products widely traded at securities firms.

Types of ELW
ELWs are broadly divided into two types.
1. Call Warrant(Call Warrant)- "When you expect the stock price to rise"
A call warrant is the right to buy the underlying asset at a set price
2. Put Warrant(Put Warrant)- "When you expect the stock price to fall"
A put warrant is the right to sell the underlying asset at a set price
How to find ELW issues
"Issuer + underlying asset + right type + exercise price + maturity"
Example: "KB Securities Samsung Electronics Call 75000 2407"
(A call warrant issued by KB Securities, with Samsung Electronics as the underlying asset and an exercise price of 75,000 won, maturing in July 2024)
Key features of ELW
1. Leverage effect
You can expect large returns with a small investment. However, you can also suffer large losses.
It is a product with that much higher risk.
2. Limited loss
The maximum loss on an ELW investment is limited to the amount invested. On the other hand, there is in principle no limit on gains.
However, don't be misled by the phrase "limited loss."
It means your balance can go to 0 won.
3. Maturity date
ELWs always have a maturity date. If you don't sell before the maturity date, they are forcibly exercised or forcibly liquidated on the maturity date.
If it doesn't rise within a certain period, it becomes 0 won.
As maturity approaches, the price drops sharply. This is the most dangerous factor.
4. Basic deposit system
Individual investors must deposit a certain amount as a basic deposit before they can trade ELWs.
(Conditions may vary by securities firm, so check with the firm you trade with)

Therefore, ELWs should make up only a portion of your total investment portfolio.
A wise approach is to use them mainly for defensive purposes as a way to manage the risk of your overall portfolio.