IB Forex CFDs - Facts and Q&A

Overview: 
The following article is intended to provide a general introduction to forex-based Contracts for Differences (CFDs) issued by IB UK.
Background: 
IB Forex CFDs are available for the same 85 tradable currency pairs IB offers as Spot FX, with identical low commissions and margin rates. By contrast, Forex CFDs feature a contract-style highly competitive financing model detailed below.

Transparent DMA Quotes: IB ensures tight spreads and substantial liquidity as a result of combining quotation streams from 14 of the world's largest foreign exchange dealers which constitute more than 78% of market share in the global interbank market*. This results in displayed quotes as small as 0.1 PIP. IB does not mark up the quotes, rather passes through the prices that it receives and charges a separate low commission.

*Source: Euromoney FX survey FX Poll 2015.

Carry Interest: Forex CFDs are rolled over reflecting the benchmark interest rate differential of the relevant currency pair. This is in principle similar to the TOM Next rolls used by other brokers, but offers greater stability as benchmark rates generally are less volatile than swap rates. In addition IB applies a low financing spread that for major pairs starts at just 1.0% and can be as low as 0.5% for large balances. More volatile pairs have higher financing spreads.
 
The carry interest for IB Forex CFDs is based on a currency-pair specific benchmark and a spread. The benchmark is the difference between the IB benchmark rates for the two currencies. It is calculated as + BM Base currency – BM Quote currency.

For example, April 21, 2016 the GBP benchmark rate was 0.483%, the USD rate was 0.37%. The applicable benchmark rate is:

GBP.USD BM +0.48% - 0.37% = +0.113%

The applicable customer rate is Pair BM – IB spread for long positions, BM + spread for short positions:

GBP.USD Long Rate +0.113% - 1.00% = -0.887%

GBP.USD Short Rate +0.113% + 1.00% = +1.113%

It is important to note that the long rate is applied as a credit, the short rate as a debit. Consequently for a long position a positive rate means a credit, a negative rate a charge. However for short positions a positive rate means a charge, a negative rate a credit.

Interest is calculated on the contract value expressed in the quote currency, and credited or debited in that currency. For example:

For example:

Daily Interest
  Position GBP.USD Close USD Value Rate USD
GBP.USD -20,000 1.43232 -28,646.40 1.113% -0.89

Interest on Forex CFD balances is calculated on a stand-alone contract basis, and not combined or netted with other currency exposures, including Spot FX. Although IB does not directly reference swap rates, IB reserves the right to apply higher spreads in exceptional market conditions, such as during spikes in swap rates that can occur around fiscal year-ends.

Detailed interest schedules can be viewed here.
 
Trading: IB Forex CFDs are traded exactly like Spot FX, with the same over 20 available order types and algos. IB Forex CFDs can be traded either in classical TWS or in the IB FX Trader. To find the contract you want to trade in classical TWS or FX Trader, enter the currency pair (i.e. EUR.USD) and choose CFD in the Contract Selection pop-up.
 
Margin: IB Forex CFD margins are determined for each currency pair on a per contract basis without
regard to other Forex balances held in the account, including Spot FX. Margins start as low as 2.5% of contract value for major currency pairs. Details for all currency pairs can be found here.
 
Commissions: IB passes through the prices that it receives and charges a separate low commission.
We do this in the interest of providing a transparent pricing structure instead of marking up our quotes and charging nothing in commissions as is the practice with many forex brokers. Commissions are tiered based on monthly traded value, and range from 0.20 basis points to 0.08 basis points. Both Forex CFD and spot FX volumes count toward the tiers.
Details are found here.
 
Trading Permissions: In order to trade Forex CFDs, you must set up the trading permission for Forex CFDs in Account Management. The suitability criteria are the same as those for Leverage FX.  Note that Forex CFDs, like other CFDs, are carried by IB UK, and therefore if you have an IB LLC account you will be prompted to open an IB UK segment. The IB UK segment will have your current account number followed by the suffix F. 
 
Contract Specifications
CFD Type Forex
Underlying Spot currency pair, e.g. EUR.USD
Contract Unit 1 unit of base currency
Minimum Order Size Defined by contract base currency, approx. USD 25,000 equivalent. 1-unit increments after minimum is met. Applies to both opening and closing transactions. Smaller orders are accepted but executed as odd-lot orders incurring a higher spread.
Contract Currency Contract base currency
Cash Flow Currency Realized P&L and carry interest are debited or credit in the contract quote currency. IB does not automatically convert such balances to the account base currency. The balances are subject to interest, positive or negative, at IB cash rates.
Carry Interest Base Rate Benchmark differential +/- IB spread
Carry Interest Currency Quote currency
Commission Currency Contract quote currency. Commissions are converted to account base currency and charged to cash
Display Price (Underlying)

Default 0.5 pips. 0.1 pips configurable in TWS

Note: Executions always in 0.1 pips regardless of display price configuration

TIC Increment As above
Trading Hours (EST)

Trading week Sun 1715 – Fri 17:00

Continuous quoting except 17:00-17:15 daily

Sat closed

Public Holidays Per Forex Holiday Calendar

 CFD Resources

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

 

Frequently Asked Questions

Can anyone trade IB Forex CFDs?

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

 

What is the difference between IB Forex CFDs and IB Cash Forex?

IB Cash Forex is a leveraged cash trade where you take delivery of the two currencies making up the pair. Your Forex-trading related balances are combined with your other balances arising out of your other trading activity, and you pay or receive interest on these consolidated balances based on the benchmark rate for each currency.

By contrast IB Forex CFDs are a contract which provides exposure but does not deliver the underlying currencies, and you pay or receive interest on the notional value of the contract. The benchmark rate for the contract is the difference between the benchmark rates for the two underlying currencies. This is in principle similar to the TOM Next rolls used by other brokers, but offers greater stability as benchmark rates generally are less volatile than swap rates.

Please see the Carry Interest section above for a detailed example.

 

Are there any market data requirements?

The market data for IB Forex CFDs is the same as for Leverage FX. It is a global permission and free of charge.

 

How are my CFD trades and positions reflected in my statements?

If you hold an account carried by IB 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.

 

Can I trade Forex CFDs with the same order types and algos as Spot FX, and can I trade them in the FX Trader?

Yes, the trading experience is identical.