Key Information Documents (KID)

Overview: 

IBKR is required to provide EEA and UK retail customers with Key Information Documents (KID) for certain financial instruments.

Relevant products include ETFs, Futures, Options, Warrants, Structured Products, CFDs and other OTC products. Funds include both UCITS and non-UCITS funds available to retail investors.

Generally KIDs must be provided in an official language of the country in which a client is resident.

However, clients of IBKR have agreed to receive communications in English, and therefore if a KID is available in English all EEA and UK clients can trade the product regardless of their country of residence.

In cases where a KID is not available in English, IBKR additionally supports other languages as follows:

Language Can be traded by residents or citizens* of
German Germany, Austria, Belgium, Luxembourg and Liechtenstein
French France, Belgium and Luxembourg
Dutch the Netherlands and Belgium
Italian Italy
Spanish Spain

*regardless of country of residence

 

愛爾蘭中央銀行差價合約新規推行概述 - 針對IBIE零售客戶

Overview: 

差價合約屬於複雜金融產品,其交易存在高風險,由於槓桿的作用,可能會出現迅速虧損。

在通過IBKR交易差價合約時,零售投資者賬戶中有69.4%出現了虧損。

您應考慮自己是否理解差價合約的運作機制以及自己是否能夠承受虧損風險。

 愛爾蘭中央銀行(CBI)通過適用於零售投資者交易差價合約的新規則,自2019年8月1日起生效。專業客戶不受影響。

新規包括:1) 槓桿限制;2) 以單個賬戶為單位的保證金平倉規則;3) 以單個賬戶為單位的負餘額保護規則;4) 對交易差價合約激勵措施的限制;以及5) 標准的風險警告。

大多數客戶(受監管的實體除外)一開始都會被分類為零售客戶。某些情況下,IBKR可能會同意把零售客戶重新分類為專業客戶,或將專業客戶重新分類為零售客戶。更多詳細信息 ,請參見MiFID分類

以下板塊詳細說明了IBKR執行 CBI規定的方式。

1 槓桿限制

 1.1 保證金
CBI 已設定不同層級的槓桿限制,視乎底層產品而定:

  • 主要貨幣對為3.33%;主要貨幣對為美元、加元、歐元、英鎊、瑞郎、日元間的任意組合
  • 以下產品的槓桿限制為5%:
    • 非主要貨幣對為包含上方未列出貨幣的任意組合,如美元/離岸人民幣
    • 主要指數為IBUS500、IBUS30、IBUST100、IBGB100、IBDE40、IBEU50、IBFR40、 IBJP225、IBAU200
    • 黃金
  • 非主要股市指數的槓桿限制為10%;IBES35、IBCH20、IBNL25、 IBHK50
  • 個股的槓桿限制為20%

 1.2應用的保證金 - 標準保證金要求

除CBI 保證金要求外,IBKR會根據每隻底層股票的歷史波動率,建立其自有的保證金要求(IB保證金)。 如果IB的保證金高於CBI 規定的比例,我們將應用IB的保證金率。

有關IB和 CBI 的適用保證金詳情,請查看 此處

1.2.1應用的保證金 - 最低集中保證金要求

如果您的投資組合包含少量差價合約和/或股票倉位,或者如果最大的兩種持倉佔據了絕大多數份額,則您的賬戶將應用集中保證金。我們會通過對最大的兩種持倉假設30%的跌幅、對其餘持倉假設5%的跌幅來對您的投資組合進行壓力測試。如果總虧損額高於股票和差價合約倉位加在一起的標準保證金要求,則將用總虧損額作爲維持保證金要求。注意,差價合約和股票倉位一起計算保證金的情况下,只會應用集中保證金。

1.3初始保證金要求的資金

您只可使用現金作爲初始保證金開立差價合約倉位。

最開始,所有用於注資賬戶的現金都可以用於差價合約交易。隨著其它産品産生初始保證金要求以及現金被用於買入股票,可用現金會逐漸减少。如果您用現金買股票産生了保證金貸款,則即使賬戶有高額資産,您也不會有資金進行差價合約交易。根據CBI 法規,我們不能爲差價合約保證金增加保證金貸款。

已實現的差價合約盈利將包括在現金中且立即可用;現金無需先結算。然而,未實現的盈利不得用於滿足初始保證金要求。

2 保證金平倉規則

2.1維持保證金計算與清算

如果符合條件的資産跌至開倉初始保證金的50%以下,CBI 要求IBKR清算最新的差價合約倉位。如果我們的風險觀更爲保守,IBKR可能會更早平倉倉位。這裏符合條件的資産包括差價合約現金和未實現的差價合約盈虧(正和負)。注意,差價合約現金不包括用於支撐其它産品保證金要求的現金。  

計算的基礎爲開立差價合約倉位時存入的初始保證金。  換言之,當差價合約持倉的價值發生變動時,初始保證金的金額不會變化,這與非差價合約持倉適用的保證金計算方式不同。

2.1.1舉例

您賬戶中有2000歐元現金且沒有未平倉的倉位。您想以100歐元的限價買入100份XYZ的差價合約。首先成交了50份合約,然後再成交其餘的50份。隨著您的交易成交,您的可用現金减少如下:

 

現金

淨資産*

持倉

價格

價值

未實現盈虧

初始保證金M

維持保證金

可用現金

維持保證金不足

交易前

2000

2000

 

 

 

 

 

 

2000

 

第一次交易後

2000

2000

50

100

5000

0

1000

500

1000

第二次交易後

2000

2000

100

100

10000

0

2000

1000

0

 *淨資産等於現金加未實現盈虧

價格上漲至110。您的淨資産現爲3000,但由於您的可用現金仍爲0,且在CBI 規則下初始保證金和維持保證金不變,因此您不得開立新的倉位:

 

現金

股票

持倉

價格

價值

未實現盈虧

初始保證金M

維持保證金

可用現金

維持保證金不足

變化

2000

3000

100

110

11000

1000

2000

1000

0

 然後價格下跌至95。您的淨資産跌至1500,但鑑於淨資産仍大於1000,無需追加保證金:

 

現金

股票

持倉

價格

價值

未實現盈虧

初始保證金M

維持保證金

可用現金

維持保證金不足

變化

2000

1500

100

95

9500

(500)

2000

1000

0

 價格進一步跌至85,導致保證金不足並觸發清算:

 

現金

股票

持倉

價格

價值

未實現盈虧

初始保證金M

維持保證金

可用現金

維持保證金不足

變化

2000

500

100

85

8500

(1500)

2000

1000

0

 3 負資産保護

CBI 規則規定,您交易差價合約的損失以劃撥的專項資金爲上限。不得清算其它金融産品(如股票或期貨)來填補差價合約的保證金缺口。*

因此,非差價合約資産不算您的差價合約交易風險資本。 

如果您的損失超過了差價合約交易的專項資金,則IB必須劃銷損失。 

由於負資産保護對IBKR來說意味著要承擔額外風險,對於隔夜持有的差價合約持倉我們會向零售客戶額外收取1%的融資息差。您可在此處查看詳細的差價合約融資利率。

*我們無法清算非差價合約持倉來彌補差價合約不足,但可以清算差價合約持倉來彌補非差價合約不足。

 

“EMIR”:交易報告庫報告義務和盈透證券的委託報告服務

 

1. 背景:2008年金融危機爆發後,G20于2009年承諾推行一系列改革,旨在提高場外衍生品市場的透明度降低對手方風險。該等承諾大多數通過《歐洲市場基礎設施監管法規》(“EMIR”)在歐盟得以落實。EMIR是歐盟制定的監管法規,于2012年8月16日生效。
 
2. 根據EMIR可報告的金融産品和資産類別:以下資産類別的場外和交易所交易衍生品:信貸、利息、股票、商品和外匯衍生品。交易所交易的權證不需要報告。
 
3. 誰需要進行EMIR報告:正常情况下,所有在歐盟成立的交易對手方均需進行報告,不包括自然人。報告義務適用于:
* 金融交易對手方(“FC”)
* 高于清算門檻的非金融交易對手方(“NFC+”)
* 低于清算門檻的非金融交易對手方(“NFC-”)
* 某些極少數情况下歐盟以外的第三國實體(“TCE”)
 
基本上,任何在歐盟成立的且參與衍生品合約交易的實體都需要進行報告。
 
4. 金融交易對手方(“FC”):包括銀行、投資公司、信貸機構、保險公司、可轉讓證券集合投資計劃(UCITS)和養老金計劃以及由另類投資基金經理(AIFM)管理的另類投資基金。另類投資基金(AIF)只有在其基金經理系根據另類投資基金經理指令(AIFMD)獲得授權的情况下才會成爲金融交易對手方,因此,位于歐盟以外的基金可能會需要遵守EMIR報告要求。
 
5. 非金融交易對手方(“NFC”):非金融交易對手方是除FC和中央對手方(CCP)(如清算所)以外的在歐盟成立的企業。NFC承擔的義務比FC少。但是,如果突破了“清算門檻”,NFC就會成爲高于清算門檻的非金融交易對手方(“NFC+”),這時,其承擔的義務就與FC的幾乎一樣了(包括抵押品和估值報告)。低于清算門檻的非金融交易對手方稱爲NFC-。事實上,除自然個人(即單個個人或操作一個聯名賬戶的多名個人
)均被定義爲NFC-,需要承擔報告義務。
 
盈透證券的委托報告服務可助您履行報告義務
 
6. 盈透證券提供哪些服務幫助客戶履行報告義務(即盈透證券會提供委托交易報告服務和幫助簽發LEI嗎):如上文所述,FC和NFC都必須向授權交易報告庫(TR)上報其交易(場外和交易所交易衍生品)的詳細信息。該等義務可直接通過交易報告庫解除,也可以通過將報告操作委托給對手方或第三方(代爲提交報告)來達成。
 
對于由其提供執行和清算服務的客戶,盈透證券幫助簽發LEI幷提供委托報告服務,該等服務須征得客戶同意,幷且只在運營、法律和監管允許的範圍內提供。
 
如果您需要進行EMIR報告,很快您便可以登錄IB賬戶管理系統申請LEI幷將報告委托給盈透證券。
 
我們還會納入估值報告,但只有在法律和監管允許的範圍內,且在對手方被要求上報的情况下(即對手方是FC或NFC+的情况下)才會進行。
 
但是,盈透證券會使用自己的交易估值進行報告。
 
7. EMIR報告可以委托嗎:EMIR允許交易的任意一方將報告委托給第三方。交易的任意一方或CCP將報告委托給了第三方後,仍對遵守報告義務負有最終責任。同樣,交易的任意一方或CCP必須確保接受其委托的第三方正確地進行報告。經紀商和交易商如果僅僅只是以代理的身份行事則沒有報告義務。如果一筆大宗買賣導致出現多筆交易,則每筆交易都需上報。
 
基金與子基金 - EMIR規定的義務是針對交易對手方而言的,而交易對手方可能是基金或子基金。作爲交易主角的基金或子基金須提供有關其分類(FC、NFC+或NFC-)的詳細信息,還須提供委托報告和法律實體識別號碼(“LEI”)申請相關 的授權。
 
8. EMIR第1(4)和1(5)條的豁免規定:EMIR第1(4)和1(5)條提到,某些實體根據其分類可免除EMIR規定的部分或全部義務。具體來說,第1(4)條的豁免實體可免除EMIR規定的所有義務,而第1(5)條的豁免實體可免除報告義務以外的所有義務,也就是仍須履行報告義務。
 
9. 符合EMIR第1(4)條和1(5)條要求的實體:第1(4)條最初只適用于歐盟國家的中央銀行、涉及公共債務管理的歐盟公共機構和國際清算銀行。後來,
第1(4)條豁免的適用範圍得以擴展,納入了美國和日本的的中央銀行和債務管理辦公室。歐盟委員會表示,未來會有更多外國中央銀行和債務管理辦公室被納入豁免範疇,前提是委員會確信該等行政轄區內有同等力度的監管。第1(5)條對以下類別的實體予以豁免:
- 多邊開發銀行;
- 由中央政府所有且提供擔保的非商業公營實體;以及
- 歐洲金融穩定基金和歐洲穩定機制。
 
10. 場外和交易所交易衍生品:從第一層法規、執行技術標準和歐洲證券和市場管理局(ESMA)的監管技術標準來看,交易所交易衍生品和場外交易合約的報告幷沒有什麽不同。
 
合約會采用獨一無二的産品識別碼進行識別。此外,交易還需要有獨一無二的交易識別碼。如果沒有一個全球公認的産品識別碼系統,則建議考慮用國際證券識別碼(ISIN)、另類産品識別碼(AII)或金融産品分類編碼(CFI)作爲替代。
 
11. 盈透證券使用的交易報告庫:盈透證券(英國)有限公司將使用CME ETR(從屬￿CME集團)的服務。
 
12. LEI的簽發
 
所有參與衍生品交易的歐盟交易對手方均必須持有LEI才能履行報告義務。LEI將用于報告交易對手方數據。
 
LEI是與法人或法律結構挂鈎的唯一識別號碼或代碼,可供準確識別金融交易的各方。
 
“EMIR”:有關報告義務的更多信息
 
13. 用于確定一個NFC是NFC+還是NFC-的門檻值:超出下方任意一項清算門檻均意味著將被歸類爲NFC+。持倉必須按30天滾動平均值計算(名義價值):
• 場外信用衍生品合約爲10億歐元總名義價值;
• 場外股票衍生品合約爲10億歐元總名義價值;
• 場外利率衍生品合約爲30億歐元總名義價值;
• 場外外匯衍生品合約爲30億歐元總名義價值;
• 場外大宗商品衍生品合約和上方未提及的其它場外衍生品合約爲30億歐元總名義價值。
 
在計算是否突破清算門檻時,NFC必須將其集團內所有非金融實體的交易加總在一起(需確定該等實體是在歐盟以內還是在歐盟以外),但要减去爲了對沖或財務目的進行的交易。這裏的“對沖交易”是指客觀可衡量爲降低與NFC或其所屬集團的商業活動或融資活動直接相關之風險的交易。
 
14. 風險敞口報告:FC和NFC必須上報以下信息:
 
* 各合約的按市值計價或按模型計價價值
* 提供的所有抵押品的詳細信息,按交易或者按投資組合(即按一系列合約産生的淨持倉計算抵押品,而不是按單筆交易提供的抵押品)報告
 
15. 向交易報告庫進行報告的時間安排:開始報告的日期爲2014年2月12日:
 
* 2月12日或之後達成的新合約,按T+1報告;
* 由2012年8月16日或之後達成之合約産生的、且到2014年2月12日仍未平倉的倉位必須在2014年2月12日之前上報至交易報告庫;
* 由8月16日之前達成之合約産生的、且到2014年2月12日仍未平倉的合約必須在2014年5月13日之前上報至交易報告庫;
* 估值和抵押品必須在2014年8月12日之前上報至交易報告庫;
* 2012年8月16日之前、當天或之後達成的合約,如果到2014年2月12日已平倉,則必須在2017年2月12日之前上報至交易報告庫。
 
16. 需要上報的信息以及上報時間:必須上報每筆交易的交易對手方(交易對手方數據)和合約(通用數據)。
 
交易對手方數據有26項,通用數據有59項。ESMA監管技術標準附件的表1和2詳細列出了該等需要上報至交易報告庫的項目。
 
在以下情形下,交易對手方和CCP必須進行上報:
 
* 達成合約時
* 修改合約時
* 終止合約時
 
上報時間必須不晚于合約達成、修改或終止後一個工作日。
 
17. 什麽産品需要上報以及誰負責上報:場外交易衍生品和交易所交易衍生品都需要上報。交易的對手方無論其分類如何,都有報告義務。請注意:
 
* 只有FC和NFC+需要進行估值和抵押品報告
* 每筆交易交易雙方都需要上報。
 
本信息僅用于指導使用盈透證券清算服務的客戶
 
注:以上信息不作爲全面窮盡式指南,也不是對法規的權威性解釋,而是對ESMA的EMIR法規和對應交易報告庫報告義務相關信息的總結。

 

TWS Account Window for Retail Clients of IBKR Ireland and Central Europe

Overview: 

This article describes the information provided in the TWS account window for IBKRs EU based entities.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

61% of retail investor accounts lose money when trading CFDs with IBKR.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

Background: 

Retail clients who are residents of the EEA and therefore maintain an account with one of IBKR’s European brokers, IBIE or IBCE, are subject to EU regulations which introduce leverage and other restrictions applicable to CFD transactions.

Notably the regulations require the use of free cash to satisfy CFD margin requirements and prohibit retail clients from using securities in the account as collateral to borrow funds to initiate or maintain a CFD position. Please see Overview of ESMA CFD Rules Implementation for Retail Clients at IBIE and IBCE for full details.

The accounts of IBKRs EU entities are universal accounts in which clients can trade all asset classes available on IBKRs platform, but unlike IBKRs US and UK entities, there are no separately funded segments.

Working examples of how this restriction is applied, along with details as to how clients can monitor free cash available for CFD transactions, are outlined below.

Account Window

IBKR enforces the restriction relating to free cash by calculating the funds available for CFD trading on a real-time basis, rejecting new orders and liquidating existing positions when the available free cash is insufficient to cover CFD initial and maintenance margin requirements.

IBKR offers clients the ability to monitor free cash available for CFD transactions via an enhancement to the TWS Account Window which displays the level of free cash in the account. Importantly, the funds shown as available for CFD trading do not imply that cash is held in a separate segment. It simply indicates what proportion of total account balances is available for CFD trading.

For example, assume that an account has EUR 9,705 in cash and no positions. All the cash is available to open CFD positions, or positions in any other asset class:

If the account now purchases 10 shares of AAPL stock for an aggregate value of USD 1,383 the cash in the account is reduced by a corresponding amount in EUR, and the funds available for CFD trading are reduced by the
same amount:

 

Note that Total available funds are reduced by a smaller amount, corresponding to the stock margin requirement.

If, instead of buying AAPL stock, the account buys 10 AAPL CFDs the impact will be different. As the transaction involves a derivative contract rather than the purchase of the underlying asset itself, there’s no reduction in cash but the funds available for CFDs are reduced by the CFD margin requirement to secure performance on the contract:

In this case Total available funds and CFD available funds are reduced by an equal amount; the CFD margin requirement.

Funding

As noted above, EU-based accounts do not have segments and therefore there is no need for internal transfers. Funds are available for trades in all asset classes in the amounts indicated in the account window, without the need for sweeps or transfers.

Note also that should an account have a margin loan, i.e. negative cash, it will not be possible to open CFD positions since the CFD margin requirement must be satisfied by free, positive cash. Should you have a margin loan and wish to trade CFDs you must first either close margin positions to eliminate the loan, or add cash to the account in an amount that covers the margin loan and creates a cash buffer sufficient for the necessary CFD margin.

IBKR Metals CFDs – Facts and Q&A

Overview: 

The following article is intended to provide a general introduction to London Gold and Silver Contracts for Differences (CFDs) issued by IBKR.

Please follow these links for information on IBKR Share CFDs, Index CFDs and Forex CFDs.

Risk Warning
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

61% of retail investor accounts lose money when trading CFDs with IBKR.

You should consider whether you understand how CFDs work and whether you can afford to take the
high risk of losing your money.

 

ESMA Rules for CFDs (Retail Clients only)
The European Securities and Markets Authority (ESMA) has enacted new CFD rules effective 1st August
2018.

The rules include: 1) leverage limits on the opening of a CFD position; 2) a margin close out rule on a per
account basis; and 3) negative balance protection on a per account basis.

The ESMA Decision is only applicable to retail clients. Professional clients are unaffected.
Please refer to the following articles for more detail:

ESMA CFD Rules Implementation at IBKR (UK) and IBKR LLC

ESMA CFD Rules Implementation at IBIE and IBCE

Introduction
A London Gold CFD enables you to have exposure to price movements of physical Gold without actually owning it. A London Gold CFD is an agreement between you and IBKR to exchange the difference in price of the underlying over a period of time. The difference to be exchanged is determined by the change in the reference price of the underlying. Thus, if the price of physical Gold traded on the London bullion market rises and you are long the CFD, you receive cash from IBKR and vice versa. A London Gold CFD can be bought long or sold short to suit your view of market direction in the future.

Contract Specifications

Contract IBKR Symbol Per Trade Fee Minimum per Order Multiplier
London Gold XAUUSD 0.015% USD 2.00 1
London Silver XAGUSD 0.03% USD 2.00 1

Price Determination
The IBKR London Gold and Silver CFDs reference physical Gold and Silver traded on the London bullion market. The London bullion market is a wholesale over-the-counter market for the trading of precious metals. Trading is conducted among members of the London Bullion Market Association (LBMA). Most of the members are major international banks.

IBKR receives quote streams from approximately 10 such major banks, in much the same way it does for cash forex. IBKR Smart routes between the banks, and the best available price at any given time becomes the reference price for the CFDs. IBKR does not add a spread to the banks’ quotes.

Low Commissions and Financing Rates: Unlike other CFD providers IBKR charges a transparent
commission, rather than widening the spread. Commission rates are only 0.015% for London Gold and 0.03% for London Silver. Overnight financing rates are just benchmark +/- 1.5% (an additional 1% surcharge is added for retail accounts).

Transparent Quotes: Because IBKR does not widen the spread, the Metals CFD quotes accurately
represent the spreads and price movements of the related cash metal, as described above.

Margin Efficiency: IBKR establishes house-margin requirements based on historic volatility of the
underlying and other factors. Retail clients are subject to regulatory minimum initial margins of 5% for
London Gold or 10% for London Silver. 

Trading Permissions: Same as for Share and Index CFDs.

Market Data Permissions: Metals CFD market data is free, but a permission is required for system
reasons.

Worked Trade Example (Professional Clients):

You purchase 100 XAUUSD CFDs at $1,942.5 for USD 194,250 which you then hold for 5 days.

Closing the Position

CFD Resources
Below are some useful links with more detailed information on IB’s CFD offering:

CFD Product Listings

CFD Commissions

CFD Financing Rates

CFD Margin Requirements

CFD Contract Specifications

Frequently asked Questions

Are short Metals CFDs subject to forced buy-in?
No.

Can I take delivery of the underlying metal?

No, IBKR does not support physical delivery for Metals CFDs.

Are there any market data requirements?
The market data for Metal CFDs is free, and is included the market data for Index CFDs. However, you need to subscribe to the permission for system reasons. To do this, log into Account Management, and click through the following tabs: Settings/User Settings/Trading Platform/Market Data Subscriptions. Alternatively you can set up an Index or Metals CFD in your TWS quote monitor and click the “Market Data Subscription Manager” button that appears on the quote line.

How are my CFD trades and positions reflected in my statements?
If you are a client of IBKR (U.K.) or IBKR LLC, your CFD positions are held in a separate account segment identified by your primary account number with the suffix “F”. You can choose to view Activity Statements for the F-segment either separately or consolidated with your main account. You can make the choice in the statement window in Account Management.

If you are a client of other IBKR entities, there is no separate segment. You can view your positions normally alongside your non-CFD positions.

In what type of IB accounts can I trade CFDs e.g., Individual, Friends and Family,
Institutional, etc.?

All margin and cash accounts are eligible for CFD trading. 

Can I trade CFDs over the phone?
No. In exceptional cases we may agree to process closing orders over the phone, but never opening
orders.

Can anyone trade IB CFDs?
All clients can trade IB CFDs, except residents of the USA, Canada, Hong Kong, New Zealand and
Israel. There are no exemptions based on investor type to the residency-based exclusions.

Bonus Certificates Tutorial

Introduction
Bonus certificates are designed to provide a predictable return in sideways markets, and market returns in rising markets.

At the time they’re issued, bonus certificates normally have a term to maturity of two to four years. You will receive a specified cash pay-out (“bonus level” or “Strike”) if at maturity the price of the underlying is below or at the strike, as long as the underlying instrument has not touched or fallen below an established price level (“safety threshold” or “barrier”) during the term of the certificate.

Unless the certificate has a cap, you continue to participate in the price gains if the underlying instrument rises above the bonus level. In this case you either receive the corresponding number of shares or a cash settlement reflecting the value of the underlying instrument on the maturity date.

However, if the barrier is breached, you will no longer be entitled to the bonus payment. The value of the certificate then corresponds to the value of the underlying (times the ratio). In other words, once the barrier has been touched the certificate effectively converts to an index certificate. You will receive either the corresponding number of shares or a cash settlement reflecting the value of the underlying instrument on the maturity date.

Although there is no structured leverage, the presence of the barrier creates effective leverage. When the price of the underlying instrument approaches the barrier the probability of a breach increases, affecting the price of the certificate disproportionately.

Pay-out Profile

Example

Assume a bonus certificate on ABC share. The certificate has a strike of EUR 45.00 and a barrier set at EUR 36.00. The table below shows scenarios depending on the trading range of the underlying, the final price of the underlying and whether the barrier has been touched or not.

Warrant Tutorial

Introduction
A warrant confers the right to buy (call-warrant) or sell (put-warrant) a specific quantity of a specific underlying instrument at a specific price over a specific period of time.

Pay-out Profile

With some warrants, the option right can only be exercised on the expiration date. These are referred to as “European-style” warrants. With “American-style” warrants, the option right can be exercised at any time prior to expiration. The vast majority of listed warrants are cash-exercised, meaning that you cannot exercise the warrant to obtain the underlying physical share. The exception to this rule is Switzerland, where physically settled warrants are widely available.

IBKR does allow for US and Canadian warrant exercise. Customers wishing to do so should submit a Customer Service ticket stating the name/symbol of the warrant, the quantity of shares and the intended action (i.e. exercise). The broker will pass through all associated exercise costs to the customer upon completion of the request. US or Canadian warrants are not eligible for auto-exercise at expiration. Warrants remaining in an account at expiration will be removed as worthless.

Factors that influence pricing
Not only do changes in the price of the underlying instrument influence the value of a warrant, a number of other factors are also involved. Of particular importance to investors in this regard are changes in volatility, i.e. the degree to which the price of the underlying instrument fluctuates. In addition, changes in interest rates and the anticipated dividend payments on the underlying instrument also play a role.

However, changes in implied volatility - as well as interest rates and dividends - only affect the time value of a warrant. The primary driver - intrinsic value - is solely determined by the difference between the price of the underlying instrument and the specified exercise price.

Historical and implied volatility
In addressing this topic, a differentiation has to be made between historical and implied volatility. Implied volatility reflects the volatility market participants expect to see in the financial instrument in the days and months ahead. If implied volatility for the underlying instrument increases, so does the price of the warrant.

This is because the probability of profiting from a warrant during a particular time-frame increases if the price of the underlying instrument is highly volatile. The warrant is therefore more valuable.

Conversely, if implied volatility decreases, that leads to a decline in the value of warrants and hence occasionally to nasty surprises for warrant investors who aren’t familiar with the concept and influence of volatility.

Interest rates and dividends
Issuers hedge themselves against price changes in the warrant through purchases and sales of the underlying instrument. Due to the leverage afforded by warrants, the issuer needs considerably more capital to hedge its exposure than you require to buy the warrants. The issuer’s interest expense associated with that capital is included in the price of the warrant. The amount of embedded interest reduces over time and at expiration is zero.

In the case of puts, the situation is exactly the opposite. Here, the issuer sells the underlying instrument
short to establish the necessary hedge, and in so doing receives capital that can earn interest. Thus interest reduces the price of the warrant by an amount that decreases over time.

As the issuer owns shares as a part of its hedging operations, it is entitled to receive the related dividend
payments. That additional income reduces the price of call warrants and increases the price for puts. But if the dividend expectations change, that will have an influence on the price of the warrants. Unanticipated special dividends on the underlying instrument can lead to a price decline in the related warrants.

Key valuation factors
Let’s assume the following warrant:
Warrant Type: Call
Term to expiration: 2 years
Underlying : ABC Share
Share price: EUR 30.00
Strike: EUR 30.00
Exercise ratio: 0.1
Warrant’s price: EUR 0.30

Intrinsic value
Intrinsic value represents the amount you could receive if you exercised the warrant immediately and then bought (in the case of a call) or sold (put) the underlying instrument in the open market.

It’s very easy to calculate the intrinsic value of a warrant. In our example the intrinsic value is EUR 00.00
and is calculated as follows:

(price of underlying instrument – strike price) x exercise ratio
= (EUR 30.00 – EUR 30.00) x 0.1

= EUR 00.00

If the price of the ABC share increases by EUR 1, the intrinsic value becomes
= (EUR 31.00 – EUR 30.00) x 0.1

= EUR 00.10

The intrinsic value of a put warrant is calculated with this formula:

(strike price – price of underlying instrument) x exercise ratio

It’s important to note that the intrinsic value of a warrant can never be negative. By way of explanation:
if the price of the underlying instrument is at or below the exercise price, the intrinsic value of a call equals zero. In this instance, the price of the warrant consists only of “time value”. On the flipside, the intrinsic value of a put is equal to zero if the price of the underlying instrument is at or above the exercise price.

Time value
Once you’ve calculated the intrinsic value of a warrant, it’s also easy to figure out what the time value of that warrant is. You simply deduct the intrinsic value from the current market price of the warrant. In our example, the time value is equal to EUR 1.30 as you can see from the following calculation:

(warrant price – intrinsic value)
= (EUR 0.30 EUR – EUR 0.00)

= EUR 0.30

Time value gradually erodes during the term of a warrant and ultimately ends up at zero upon expiration. At that point, warrants with no intrinsic value expire worthless. Otherwise you can expect to receive payment of the intrinsic value. Take note, though: a warrant’s loss of time value accelerates during the final months of its term.

Premium
The premium indicates how much more expensive a purchase/sale of the underlying instrument would be via the purchase of a warrant and the immediate exercise of the option right as opposed to simply buying/selling the underlying instrument in the open market.

Hence the premium is a measure of how expensive a warrant actually is. It follows that, when given a choice between warrants with similar features, you should always buy the one with the lowest premium. By calculating the premium as an annualized percentage, warrants with different terms to expiry can be compared with each other.

The percentage premium for the call warrant in our example can be calculated as follows:

(strike price + warrant price / exercise ratio – share price) / share price * 100

= (EUR 30.00 + EUR 0.30 / 0.1 – EUR 30.00) / EUR 30.00 x 100

= 10 percent

Leverage
The amount of leverage is the price of the share * ratio divided by the price of the warrant. In our example 30.00*0.1/0.3 = 10. So when the price of ABC increases by 1% the value of the warrant increases by 10%.

The amount of leverage is not constant however; it varies as intrinsic and time value changes, and is particularly sensitive to changes in intrinsic value. As a rule of thumb, the higher the intrinsic value of the warrant, the lower the leverage. For example (assuming constant time value):

 

 

Knock-out (Turbo) Tutorial

Introduction
Knock-out warrants (turbos), like vanilla warrants, derive their value from the difference between the price of the underlying and the strike. They differ significantly however from vanilla warrants in many important respects:

  • They can expire (knock-out) prematurely if the price of the underlying instrument touches or falls below (in the case of knock-out calls) or exceeds (in the case of knockout puts) a predetermined barrier-level. It expires worthless if the barrier equals the strike, or it may have a residual stop-loss value if the barrier is set higher than the strike (in the case of a call).
  • Changes in implied volatility have little or no impact on knock-out products, therefore their pricing is easier for investors to comprehend than that of warrants.
  • They have little or no time value (because of the presence of the knock-out barrier), and therefore have a higher degree of leverage than a warrant with the same strike. This is because the absence of time value makes the instrument “cheaper”.

Pay-out Profile

Leverage
As discussed above, knock-out warrants exhibit high degrees of leverage, particularly as the price of the underlying nears the strike/barrier. Consider the following example of a long turbo on the Dow Jones Index, compared to a vanilla warrant:

Intrinsic value = (index value – strike) x ratio
Leverage = Index Value x Ratio / Instrument Price

A vanilla warrant retains significant time value even as the underlying price approaches the strike, sharply reducing its leverage compared to a knock-out warrant.

Product types
As discussed above, the barrier may either equal the strike, or be set above (calls) or below (puts). In the latter cases a small residual value remains after knock-out, corresponding to the difference between the barrier (the stop-loss level) and the strike.

Moreover, knock-out products may either have an expiration date or may be open-ended. This makes a difference in the way interest is accounted for. If the contract has an expiration date interest is included in the premium, the amount of which reduces over time and is zero on expiration. This is analogous to a standard vanilla warrant.

in relation to an expiration date. The price of the contract therefore corresponds exactly to its intrinsic value. Interest however must be accounted for. This is done by a daily adjustment of the barrier and strike. The following example shows the daily adjustment for a long open-end turbo on the Dow Jones Index:

The adjustment = Strike T x (1+ FedFunds/360 + Issuer Spread/360).

The intrinsic value of the instrument is correspondingly reduced as follows, assuming no change in the value of the DJ Index):

Intrinsic value = (index value – strike) x ratio

 

Discount Certificates Tutorial

Introduction
Discount certificates are designed to provide an enhanced return in sideways markets, compared to a direct investment in the underlying.

Discount certificates make it possible for you to buy an underlying instrument for less than its current market price. However, the maximum payback on a discount certificate is limited to a predetermined amount (cap).

Discount certificates normally have a term to maturity of one to three years. At maturity, a determination is made of where the price of the underlying instrument stands.

If it is at or above the cap, you’ll earn the maximum return and receive payment of the amount reflected by the cap.

If the price of the underlying instrument is below the cap on the maturity date, you’ll receive either the corresponding number of shares or a cash settlement reflecting the value of the underlying instrument on the maturity date.

Pay-out Profile

Example
Assume a discount certificate on ABC share. The certificate has a cap of EUR 40.00, and a purchase price of EUR 36.00. The table below shows scenarios depending on the final price of the underlying.

Factor Certificates Tutorial

Introduction
Factor certificates employ a daily leverage factor that multiplies the daily performance of the underlying instrument. Unlike knock-out warrants and mini-futures, factor certificates do not have a knock-out barrier. To avoid a loss greater than the investment, the calculation resets intraday if the performance of the underlying threatens to render the certificate worthless.

Daily Leverage
The performance of the certificate is calculated daily, without reference to previous days’ values. If the underlying returns 1% on the day, the value of 3x certificate increases by 3%, a 5x by 5%. The next day the process is repeated, referencing the prior day’s underlying close.

As such, factor certificates are particularly suitable for day-traders.

However, for a period of more than one day, the cumulative performance of the underlying cannot be simply multiplied by a factor of 3 as the previous day’s price always forms the new basis of calculating each day’s performance for the certificate. To illustrate with an example:

Cumulatively, the factor certificate has returned less than 3x the performance of the underlying.

Intraday Reset
If an underlying for a factor certificate loses more than a certain percentage of its value intraday, the calculation is reset by simulating a new day. The reset threshold varies depending on the leverage factor.

Let’s assume a long factor certificate with a 10x leverage factor. According to the terms of the certificate, a reset will be triggered if the underlying loses more than 9.5% during the calculation day.

Let’s now assume that the underlying loses 12% of its value during a particular day. The reset
and final performance will be as follows:

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