Warrants are a type of convertible security that give their holders the right to purchase the underlying security at the price determined at the time of entering into the investment deal.
There is no obligation on the investor to exercise the warrant and buy the underlying stock.
Warrants convert on the occurrence of a trigger event. The trigger could be:
a. Time- Warrants convert as a result of pure passage of time.
b. Event- The trigger factor is any future event like a future round of financing or an operation metrics agreed at the time of investment with the investor.
Option- Here, the conversion happens on the demand of the warrant holder or at the discretion of the company.