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:
Overview of Central Bank of Ireland CFD Rules Implementation for Retail Clients at IBIE
概観:
|
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69.4% 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. |
The Central Bank of Ireland (CBI) enacted new rules applicable to retail clients trading CFDs, effective 1st August 2019. Professional clients are unaffected.
The rules consist of: 1) leverage limits; 2) a margin close out rule on a per account basis; 3) negative balance protection on a per account basis; 4) a restriction on the incentives offered to trade CFDs; and 5) a standardized risk warning.
Most clients (excepting regulated entities) are initially categorised as Retail Clients. IBKR may in certain circumstances agree to reclassify a Retail Client as a Professional Client, or a Professional Client as a Retail Client. Please see MiFID Categorisation for further detail.
The following sections detail how IBKR has implemented the CBI Decision.
1 Leverage Limits
1.1 Margins
Leverage limits were set by CBI at different levels depending on the underlying:
- 3.33% for major currency pairs; Major currency pairs are any combination of USD; CAD; EUR; GBP; CHF; JPY
- 5% for:
- Non-major currency pairs are any combination that includes a currency not listed above, e.g., USD.CNH
- Major indices are IBUS500; IBUS30; IBUST100; IBGB100; IBDE40; IBEU50; IBFR40; IBJP225; IBAU200
- Gold
- 10% for non-major equity indices; IBES35; IBCH20; IBNL25; IBHK50
- 20% for individual equities
1.2 Applied Margins - Standard Requirement
In addition to the CBI Margins, IBKR establishes its own margin requirements (IB Margins) based on the historical volatility of the underlying, and other factors. We will apply the IB Margins if they are higher than those prescribed by CBI .
Details of applicable IB and CBI margins can be found here.
1.2.1 Applied Margins - Concentration Minimum
A concentration charge is applied if your portfolio consists of a small number of CFD and/or Stock positions, or if the two largest positions have a dominant weight. We stress the portfolio by applying a 30% adverse move on the two largest positions and a 5% adverse move on the remaining positions. The total loss is applied as the maintenance margin requirement if it is greater than the standard requirement for the combined Stock and CFD positions. Note that the concentration charge is the only instance where CFD and Stock positions are margined together.
1.3 Funding of Initial Margin Requirements
You can only use cash to post initial margin to open a CFD position.
Initially all cash used to fund the account is available for CFD trading. Any initial margin requirements for other instruments and cash used to purchase cash stock reduce the available cash. If your cash stock purchases have created a margin loan, no funds are available for CFD trades even if your account has significant equity. We cannot increase a margin loan to fund CFD margin under the CBI rules.
Realized CFD profits are included in cash and are available immediately; the cash does not have to settle first. Unrealized profits however cannot be used to meet initial margin requirements.
2 Margin Close Out Rule
2.1 Maintenance Margin Calculations & Liquidations
The CBI requires IBKR to liquidate CFD positions latest when qualifying equity falls below 50% of the initial margin posted to open the positions. IBKR may close out positions sooner if our risk view is more conservative. Qualifying equity for this purpose includes CFD cash and unrealized CFD P&L (positive and negative). Note that CFD cash excludes cash supporting margin requirements for other instruments.
The basis for the calculation is the initial margin posted at the time of opening a CFD position. In other words, and unlike margin calculations applicable to non-CFD positions, the initial margin amount does not change when the value of the open position changes.
2.1.1 Example
You have EUR 2000 cash in your account and no open positions. You want to buy 100 CFDs of XYZ at a limit price of EUR 100. You are first filled 50 CFDs and then the remaining 50. Your available cash reduces as your trades are filled:
|
|
Cash |
Equity* |
Position |
Price |
Value |
Unrealized P&L |
IM |
MM |
Available Cash |
MM Violation |
|
Pre Trade |
2000 |
2000 |
|
|
|
|
|
|
2000 |
|
|
Post Trade 1 |
2000 |
2000 |
50 |
100 |
5000 |
0 |
1000 |
500 |
1000 |
No |
|
Post Trade 2 |
2000 |
2000 |
100 |
100 |
10000 |
0 |
2000 |
1000 |
0 |
No |
*Equity equals Cash plus Unrealized P&L
The price increases to 110. Your equity is now 3000, but you cannot open additional positions because your available cash is still 0, and under the CBI rules IM and MM remain unchanged:
|
|
Cash |
Equity |
Position |
Price |
Value |
Unrealized P&L |
IM |
MM |
Available Cash |
MM Violation |
|
Change |
2000 |
3000 |
100 |
110 |
11000 |
1000 |
2000 |
1000 |
0 |
No |
The price then drops to 95. Your equity declines to 1500 but there is no margin violation since it is still greater than the 1000 requirement:
|
|
Cash |
Equity |
Position |
Price |
Value |
Unrealized P&L |
IM |
MM |
Available Cash |
MM Violation |
|
Change |
2000 |
1500 |
100 |
95 |
9500 |
(500) |
2000 |
1000 |
0 |
No |
The price falls further to 85, causing a margin violation and triggering a liquidation:
|
|
Cash |
Equity |
Position |
Price |
Value |
Unrealized P&L |
IM |
MM |
Available Cash |
MM Violation |
|
Change |
2000 |
500 |
100 |
85 |
8500 |
(1500) |
2000 |
1000 |
0 |
Yes |
3 Negative Equity Protection
The CBI Decision limits your CFD-related liability to the funds dedicated to CFD-trading. Other financial instruments (e.g., shares or futures) cannot be liquidated to satisfy a CFD margin-deficit.*
Therefore, non-CFD assets are not part of your capital at risk for CFD trading.
Should you lose more than the cash dedicated to CFD trading, IB must write off the loss.
As Negative Equity Protection represents additional risk to IBKR, we will charge retail investors an additional financing spread of 1% for CFD positions held overnight. You can find detailed CFD financing rates here.
*Although we cannot liquidate non-CFD positions to cover a CFD deficit, we can liquidate CFD positions to cover a non-CFD deficit.
CFDマーケットモデルの概要
店頭取引の差金決済取引（CFD）は通常、次の3つあるモデルのどれかを使用しています: ダイレクト・マーケットアクセス（DMA）モデル、エージェンシーブローカーモデル、マーケットメーカーモデル。
IBでは3つの中でも一番透明性の高いものとされるDMAモデルを使用しています。このモデルを使用する場合、プロバイダーは原資産の実際の取引所でCFD注文をすぐにヘッジし、ヘッジ価格でCFDが約定されます。これは価格の透明性を強化することを目的とし、プロバイダーへの報酬はマークアップやマークダウンではなく、通常、手数料のみに基づくものとなります。
DMAモデルを使用する場合、プロ志向のお客様は株式取引同様に、取引所ブックにクオートを追加することができます。弊社ではすべてのCFD注文をヘッジ注文と合わせるため、約定のつかないCFD注文は取引所の原資産株式と一致するやはり約定のつかない注文を作成します。注文はレベル2のブック上で確認することができます。
またすぐに約定するしないに関わらず、注文はすべて弊社のSmartRoutingテクノロジーを利用して、複数ある原資産マーケット（LSE、CHI-X、Turquois、BATS、または内部の別のお客様の注文）のひとつにルーティングされます。
エージェンシーブローカーモデルはDMAモデルに似ており、 注文は原資産の実際の取引所で直接ヘッジされますが、 注文はプロバイダーによって管理され、約定可能になった場合のみに発注されるため、注文の発注者は自身の指値注文を取引所で見ることができません。
これとは対照的に通常のマーケットメーカーモデルを使用する場合、CFDプロバイダーはすべての注文を管理し、オプションやワラント、先物および原資産マーケットを直接利用して取引をいかにヘッジまたは相殺するかを判断します。プロバイダーは手数料を取らずに注文を市場に出すことがよくあり、ビッド・アスクのスプレッドに利益を出すプロバイダー自身の価格モデルに基づいて価格が動かされます。このモデルは市場に大きな変動がある際にはスプレッドを広げ、また再クオートができるものとみられています。
Overview of ESMA CFD Rules Implementation at IBKR (UK) - Retail Investors Only
概観:
|
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
63.7% 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. |
The European Securities and Markets Authority (ESMA) enacted new rules applicable to retail clients trading CFDs, effective 1st August 2018. Professional clients are unaffected.
The rules consist of: 1) leverage limits; 2) a margin close out rule on a per account basis; 3) negative balance protection on a per account basis; 4) a restriction on the incentives offered to trade CFDs; and 5) a standardized risk warning.
Most clients (excepting regulated entities) are initially categorised as Retail Clients. IBKR may in certain circumstances agree to reclassify a Retail Client as a Professional Client, or a Professional Client as a Retail Client. Please see MiFID Categorisation for further detail.
The following sections detail how IBKR (UK) has implemented the ESMA Decision.
1 Leverage Limits
1.1 ESMA Margins
Leverage limits were set by ESMA at different levels depending on the underlying:
- 3.33% for major currency pairs; Major currency pairs are any combination of USD; CAD; EUR; GBP; CHF; JPY
- 5% for non-major currency pairs and major indices;
- Non-major currency pairs are any combination that includes a currency not listed above, e.g. USD.CNH
- Major indices are IBUS500; IBUS30; IBUST100; IBGB100; IBDE40; IBEU50; IBFR40; IBJP225; IBAU200
- 10% for non-major equity indices; IBES35; IBCH20; IBNL25; IBHK50
- 20% for individual equities
1.2 Applied Margins - Standard Requirement
In addition to the ESMA Margins, IBKR (UK) establishes its own margin requirements (IB Margins) based on the historical volatility of the underlying, and other factors. We will apply the IB Margins if they are higher than those prescribed by ESMA.
Details of applicable IB and ESMA margins can be found here.
1.2.1 Applied Margins - Concentration Minimum
A concentration charge is applied if your portfolio consists of a small number of CFD positions, or if the two largest positions have a dominant weight. We stress the portfolio by applying a 30% adverse move on the two largest positions and a 5% adverse move on the remaining positions. The total loss is applied as the maintenance margin requirement if it is greater than the standard requirement.
1.3 Funds Available for Initial Margin
You can only use cash to post initial margin to open a CFD position. Realized CFD profits are included in cash and are available immediately; the cash does not have to settle first. Unrealized profits however cannot be used to meet initial margin requirements.
1.4 Automatic Funding of Initial Margin Requirements (F-segments)
IBKR (UK) automatically transfers funds from your main account to the F-segment of your account to fund initial margin requirements for CFDs.
Note however that no transfers are made to satisfy CFD maintenance margin requirements. Therefore if qualifying equity (defined below) becomes insufficient to meet margin requirements, a liquidation will occur even if you have ample funds in your main account. If you wish to avoid a liquidation you must transfer additional funds to the F-segment in Account Management.
2 Margin Close Out Rule
2.1 Maintenance Margin Calculations & Liquidations
ESMA requires IBKR to liquidate CFD positions latest when qualifying equity falls below 50% of the initial margin posted to open the positions. IBKR may close out positions sooner if our risk view is more conservative. Qualifying equity for this purpose includes cash in the F-segment (excluding cash in any other account segment) and unrealized CFD P&L (positive and negative).
The basis for the calculation is the initial margin posted at the time of opening a CFD position. In other words, and unlike margin calculations applicable to non-CFD positions, the initial margin amount does not change when the value of the open position changes.
2.1.1 Example
You have EUR 2000 cash in your CFD account. You want to buy 100 CFDs of XYZ at a limit price of EUR 100. You are first filled 50 CFDs and then the remaining 50. Your available cash reduces as your trades are filled:
| Cash | Equity* | Position | Price | Value | Unrealized P&L | IM | MM | Available Cash | MM Violation | |
| Pre Trade | 2000 | 2000 | 2000 | |||||||
| Post Trade 1 | 2000 | 2000 | 50 | 100 | 5000 | 0 | 1000 | 500 | 1000 | No |
| Post Trade 2 | 2000 | 2000 | 100 | 100 | 10000 | 0 | 2000 | 1000 | 0 | No |
*Equity equals Cash plus Unrealized P&L
The price increases to 110. Your equity is now 3000, but you cannot open additional positions because your available cash is still 0, and under the ESMA rules IM and MM remain unchanged:
| Cash | Equity | Position | Price | Value | Unrealized P&L | IM | MM | Available Cash | MM Violation | |
| Change | 2000 | 3000 | 100 | 110 | 11000 | 1000 | 2000 | 1000 | 0 | No |
The price then drops to 95. Your equity declines to 1500 but there is no margin violation since it is still greater than the 1000 requirement:
| Cash | Equity | Position | Price | Value | Unrealized P&L | IM | MM | Available Cash | MM Violation | |
| Change | 2000 | 1500 | 100 | 95 | 9500 | (500) | 2000 | 1000 | 0 | No |
The price falls further to 85, causing a margin violation and triggering a liquidation:
| Cash | Equity | Position | Price | Value | Unrealized P&L | IM | MM | Available Cash | MM Violation | |
| Change | 2000 | 500 | 100 | 85 | 8500 | (1500) | 2000 | 1000 | 0 | Yes |
3 Negative Equity Protection
The ESMA Decision limits your CFD-related liability to the funds dedicated to CFD-trading. Other financial instruments (e.g. shares or futures) cannot be liquidated to satisfy a CFD margin-deficit.*
Therefore assets in the security and commodity segments of your main account, and non-CFD assets held in the F-segment, are not part of your capital at risk for CFD trading. However, all cash in the F-segment can be used to cover losses arising from CFD trading.
As Negative Equity Protection represents additional risk to IBKR, we will charge retail investors an additional financing spread of 1% for CFD positions held overnight. You can find detailed CFD financing rates here.
*Although we cannot liquidate non-CFD positions to cover a CFD deficit, we can liquidate CFD positions to cover a non-CFD deficit.
4 Incentives Offered to trade CFDs
The ESMA Decision imposes a ban on monetary and certain types of non-monetary benefits related to CFD trading. IBKR does not offer any bonus or other incentives to trade CFDs.
CFD Accounting Methods: Open Trade Equity vs. Variation Margin
Risk Warning
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
68.7% of retail investor accounts lose money when trading CFDs with IBKR (UK).
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
INTRODUCTION
Open Trade Equity (OTE) and Variation Margin (VM) are two methods by which brokers report CFDs to clients. While account equity and position P/L are identical under the two methods, they are represented differently for statement reporting purposes. An overview of each method is provided below for a sample position.
SAMPLE POSITION
Assume a position in which the client has a starting cash balance of $2,500 and purchases 100 CFD contracts of hypothetical contract "ABC" at a price of $100. Further assume that the closing price of ABC is $100 on Day 1, $110 on Day 2, $95 on Day 3 and $105 on Day 4.
VM MODEL
In the VM model we calculate variation margin as the difference between the closing price of the day and the closing price on the previous day with the difference applied to cash.
The realized profit is the difference between the price at which you opened the position and the price when closed, however, as both the Trade and Position Variation are booked to cash, the Cash Balance equals Account Equity.
In this example:
| Day 1 | Day 2 |
Day 3 |
Day 4 |
|
| Price | $100 | $110 | $95 | $105 |
| Traded Size | 100 | 0 | 0 | (100) |
| Position VM |
$0 | $1,000 | ($1,500) | $0 |
| Trade VM | $0 | $0 | $0 | $1,000 |
| Realized P&(L) | $0 | $0 | $0 | $500 |
| Starting Cash | $2,500 | $2,500 | $3,500 | $2,000 |
| Ending Cash | $2,500 | $3,500 | $2,000 | $3,000 |
| Account Equity | $2,500 | $3,500 | $2,000 | $3,000 |
OTE MODEL
In the OTE model, the accumulated P&L is carried as OTE, which is the difference between the closing price of the day and the price at which you opened the position. OTE is a component of equity, but not cash. Equity therefore is Cash + OTE, and consistent with the VM model above.
The realized profit is again the difference between the price at which you opened the position and the price when closed it, however, since the running P/(L) is booked as OTE it is only the applied to the Cash Balance once realized.
| Day 1 | Day 2 |
Day 3 |
Day 4 |
|
| Price | $100 | $110 | $95 | $105 |
| Traded Size | 100 | 0 | 0 | (100) |
| OTE |
$0 | $1,000 | ($500) | $0 |
| Realized P&(L) | $0 | $0 | $0 | $500 |
| Starting Cash | $2,500 | $2,500 | $2,500 | $2,500 |
| Ending Cash | $2,500 | $2,500 | $2,500 | $3,000 |
| Account Equity | $2,500 | $3,500 | $2,000 | $3,000 |
IBKR OTC Futures on LME Metals – Facts and Q&A
The following article is intended to provide a general introduction to LME-based OTC Futures issued by IBKR.
Note: Residents of the US, Canada, Hong Kong, and Israel cannot trade IBKR LME OTC Futures.
Introduction
IBKR LME OTC Futures provide clients synthetic access to the London Metal Exchange, a peer to peer exchange not generally available to non-member investors.
The LME OTC Futures are OTC derivative contracts with IBUK as the counterparty. The LME OTC Futures reference the corresponding LME future in terms of price, lot size, type and specification but are themselves not registered contracts. Physical delivery is not permitted.
IBKR LME OTC Futures are traded through your margin account, and you can therefore enter long as well as short leveraged positions. Margin rates equal those established by the LME. Like other futures they are risk-based (SPAN), and therefore variable. Current margins range between 6 and 9% depending on the contract.
Contracts
IBKR offers OTC Futures on the 3rd Wednesday expirations for the following metals:
| Metal | IBKR Symbol | Price USD/ | Multiplier |
| High Grade Primary Aluminium | AH | Metric Ton | 25 |
| Copper Grade A | CA | Metric Ton | 25 |
| Primary Nickel | NI | Metric Ton | 6 |
| Standard Lead | PB | Metric Ton | 25 |
| Tin | SNLME | Metric Ton | 5 |
| Special High Grade Zinc | ZSLME | Metric Ton | 25 |
3rd Wednesday Expirations
The LME features a range of contracts adapted to the needs of physical traders and hedgers. The principal among them are daily 3-month forwards used by physical traders to precisely match their hedges to their needs.
The 3rd Wednesday contracts are monthly contracts, like futures, and as such better adapted to the needs of financial traders. As the name suggests, they expire on the 3rd Wednesday of each month and, although physically settled on the LME, are strictly cash-settled at IBKR. The 3rd Wednesday contracts have become increasingly popular and account for 65% of open interest on the LME.
Quotes and Market Data
IBKR streams quotes from the LME (L2 market data) and does not widen the quote. Every client order is first hedged on exchange and the LME OTC order filled at the price of the hedge.
Cash Flows
Daily variation margin and realized P&L for the IBKR LME OTC Futures are cash-settled daily, like a standard future. By contrast, cash flows for the underlying LME contract are only settled after the contract has expired.
Margins
The margin requirements for the IBKR LME OTC Futures equal the requirement for the underlying contract on the LME. LME uses Standard Portfolio Analysis of Risk (SPAN) to calculate Initial Margin.
Like for other futures, the margin rates are established as an absolute value per contract and usually updated monthly.
Trading Permissions
You will need to set up permissions for United Kingdom Metals in Client Portal.
Market Data
You will need a subscription for Level II London Metal Exchange, currently GBP 1.00.
LME OTC Resources
Product Listings & Links to Contract Details
Commissions
Margin Requirements
Frequently asked Questions
What do I need to do to start trading LME OTC Futures?
You need to set up trading permission for United Kingdom Metals in Client Portal. If you have an IB LLC or an IB UK account carried by IB LLC we will set up a new account segment (identified with your existing account number plus the suffix “F”). Once the set-up is confirmed you can begin to trade. You do not need to fund the F segment separately; funds will be automatically transferred from your main account to meet margin requirements.
How are my LME OTC Futures trades and positions reflected in my statements?
Your 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 Client Portal.
What account protections apply when trading LME OTC Futures?
LME OTC Futures are contracts with IB UK as your counterparty, and are not traded on a regulated exchange and are not cleared on a central clearinghouse. Since IB UK is the counterparty to your trades, you are exposed to the financial and business risks, including credit risk, associated with dealing with IB UK. Please note however that all client funds are always fully segregated, including for institutional clients. IB UK is a participant in the UK Financial Services Compensation Scheme ("FSCS"). IB UK is not a member of the U.S. Securities Investor Protection Corporation (“SIPC”).
Can I trade LME OTC Futures over the phone?
No. In exceptional cases we may agree to process closing orders over the phone, but never opening orders.
Overview of Forex CFDs issued by IB Australia - Facts and Q&A
概観:
The following article is intended to provide a general introduction to forex-based Contracts for Differences (CFDs) issued by IB Australia (IBA).
Background:
Transparent DMA Quotes: IBA 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 70% of market share in the global interbank market*. This results in displayed quotes as small as 0.1 PIP. IBA 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 2016.
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 IBA 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 IBA Forex CFDs is based on a currency-pair specific benchmark and a spread. The benchmark is the difference between the IBA 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 – IBA 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 if it is either AUD or USD. Interest in other currencies is converted into the base currency of your account and then credited or debited.
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 IBA does not directly reference swap rates, IBA 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: IBA Forex CFDs can be traded either in classical TWS or in the IBA FX Trader, with over 20 available order types and algos. To find the contract you want to trade in classical TWS or FX Trader, enter the currency pair (i.e. EUR.USD) and choose Sec Type CFD in the Contract Selection pop-up.
Margin: IBA Forex CFD margins are determined for each currency pair on a per contract basis without regard to other Forex balances held in the account. Margins start as low as 2.5% of contract value for major currency pairs. Details for all currency pairs can be found here.
Commissions: IBA 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.
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. Share and Index CFDs are a separate trading permission.
Trading Example
Opening the position
You purchase 10 lots (200000) EUR.CHF CFDs at $1.16195 for CHF 232,390, which you then hold for 5 days.
| EUR.CHF Forex CFDs – New Position | |
|---|---|
| Reference Underlying Price | 1.16188 - 1.16195 |
| CFDs Reference Price | 1.16188 - 1.16195 |
| Action | Buy |
| Quantity | 200,000 |
| Trade Value | CHF 232,390.00 |
| Margin (3% x 232,390) | AUD 9,100 |
| Interest Charged (on CHF 232,390 over 5 days) | |||
|---|---|---|---|
| Tier I (Pair BM 0.42% - IB Spread 1%) | CHF 232,390.00 | -0.58% | (CHF 18.72) |
Closing the position
| Exit CFD Position | ||
|---|---|---|
| Profit Scenario | Loss Scenario | |
| Reference Underlying Price | 1.16840 - 1.16848 | 1.15539 - 1.15546 |
| CFDs Reference Price | 1.16840 - 1.16848 | 1.15539 - 1.15546 |
| Action | Sell | Sell |
| Quantity | 200,000 | 200,000 |
| Trade Value | CHF 233,680.00 | CHF 231,078.00 |
| Trade P&L | CHF 1,290.00 | (CHF 1,312.00) |
| Financing | (CHF 18.72) | (CHF 18.72) |
| Entry Commission 0.002% | (CHF 4.65) | (CHF 4.65) |
| Entry Commission 0.002% | (CHF 4.67) | (CHF 4.62) |
| Total P&L | CHF 1,261.96 | (CHF 1,339.99) |
| Total P&L @ AUD.CHF 0.770855 | AUD 1,637.09 | (AUD 1,738.32) |
CFD Resources
Below are some useful links with more detailed information on IBA’s CFD offering:
Frequently Asked Questions
What is the difference between IBA Forex CFDs and other forms of forex trading?
IBA Forex CFDs are differentiated mainly by their their exceptionally tight spreads resulting from that IBA a) combines quotation streams from 14 of the world's largest foreign exchange dealers which constitute more than 70% of market share in the global interbank market*. This results in displayed quotes as small as 0.1 PIP, and b) IBA 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 2016.
IBA Forex CFDs also offer a unique financing model for positions held overnight. IBA uses a pair benchmark rate which 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 IBA Forex CFDs is the same as for Leverage FX. It is a global permission and free of charge.
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Overview of Share CFDs issued by IB Australia
概観:
Share CFD Definition
IBA CFDs are OTC contracts which deliver the return of the underlying stock, including dividends and corporate actions (read more about CFD corporate actions). You can enter long as well as short leveraged positions.
Said differently, it is an agreement between the buyer (you) and IBA to exchange the difference in the current value of a share, and its value at a future time. If you hold a long position and the difference is positive, IBA pays you. If it is negative, you pay IBA.
IBA’s CFDs work on an Open Trade Equity model. With IBA’s CFDs, the Open Trade Equity (OTE) represents the cumulative unrealised profit/loss on the CFD position relative to movements in the current price of the Reference Underlying. The profit/loss is realised when the position is closed. If the profit/loss is in a currency other than AUD or USD it is converted to the base currency of your account and credited/debited to cash.
The price of the CFD is the exchange-quoted price of the underlying share. In fact, IBA CFD quotes are identical to the Smart-routed quotes for shares that you can observe in the Trader Work Station and IBA offers Direct Market Access (DMA). Similar to shares, your nonmarketable (i.e., limit) orders have the underlying hedge directly represented on the deep book of those exchanges at which it trades. This also means that you can place orders to buy the CFD at the underlying bid and sell at the offer.
To compare IBA’s transparent CFD model to others available in the market please see our Overview of CFD Market Models.
IBA currently offers approximately 6200 Share CFDs covering the principal markets in the US, Europe and Asia. The constituents of the major indexes listed below are currently available as IBA Share CFDs. In many countries IBA also offers trading in liquid small cap shares. These are shares with free float adjusted market capitalization of at least USD 500
million and median daily trading value of at least USD 600 thousand. Please see CFD Product Listings for more detail. More countries will be added in the near future.
| United States | S&P 500, DJA, Nasdaq 100, S&P 400 (Mid Cap), Liquid Small Cap |
| United Kingdom | FTSE 350 + Liquid Small Cap (incl. IOB) |
| Germany | Dax, MDax, TecDax + Liquid Small Cap |
| Switzerland | Swiss portion of STOXX Europe 600 (48 shares) + Liquid Small Cap |
| France | CAC Large Cap, CAC Mid Cap + Liquid Small Cap |
| Netherlands | AEX, AMS Mid Cap + Liquid Small Cap |
| Belgium | BEL 20, BEL Mid Cap + Liquid Small Cap |
| Spain | IBEX 35 + Liquid Small Cap |
| Portugal | PSI 20 |
| Sweden | OMX Stockholm 30 + Liquid Small Cap |
| Finland | OMX Helsinki 25 + Liquid Small Cap |
| Denmark | OMX Copenhagen 30 + Liquid Small Cap |
| Norway | OBX |
| Czech | PX |
| Japan | Nikkei 225 + Liquid Small Cap |
| Hong Kong | HSI + Liquid Small Cap |
| Australia | ASX 200 + Liquid Small Cap |
| Singapore* | STI + Liquid Small Cap |
*not available to Singapore residents
Comparison Between CFDs and Underlying Shares
Depending on your trading objectives and trading style, CFDs offer a number of advantages compared to stocks, but also some disadvantages:
| Benefits of IB CFDs | Drawbacks of IB CFDs |
|---|---|
| No stamp duty or financial transaction tax (UK, France, Belgium) | No ownership rights |
| Generally lower commission and margin rates than shares | Complex corporate actions may not always be exactly replicable |
| Tax treaty rates for dividends without need for reclaim | Taxation of gains may differ from shares (please consult your tax advisor) |
| Exemption from day trading rules |
Worked Example
Opening the position:
You purchase 30,000 CFDs at $10.00 for $300,000, which you then hold for 30 days.
| AUD Share CFDs- New Position | |
|---|---|
| Reference Underlying Price | $9.98 - $10.00 |
| CFDs Reference Price | $9.98 - $10.00 |
| Action | Buy |
| Quantity | 30000 |
| Trade Value | $300,000 |
| Margin (20% x 300,000)1 | $60,000 |
| Interest tier Charged (on $300,000 over 30 days) | |||
|---|---|---|---|
| Tier I | $140,000 | 2.942% | $338.53 |
| Tier II 2 | $160,000 | 2.942% | $386.89 |
| Total Interest Charged | $725.42 | ||
Closing the position:
| Exit CFD Position | ||
|---|---|---|
| Profit Scenario | Loss Scenario | |
| Reference Underlying Price | $10.48 - $10.50 | $9.48 – $9.50 |
| CFDs Reference Price | $10.48 - 10.50 | $9.48 – 9.50 |
| Action | Sell | Sell |
| Quantity | 30,000 | 30,000 |
| Trade Value | $314,400 | $284,400 |
| Trade P&L | $14,400.00 | ($15,600.00) |
| Financing | ($725.42) | ($725.42) |
| Entry Commission 0.05% | ($150.00) | ($150.00) |
| Exit Commission 0.05% | ($157.20) | ($142.20) |
| Total P&L | $13,367.38 | ($16,617.62) |
1) Assuming minimum margin of 20%
2) IBA spread is 1.5% for all AUD tiers. Other currencies have additional tiers of 1%
and 0.5%
CFD Resources
Below are some useful links with more detailed information on IBA’s CFD offering:
CFD Contract Specifications
CFD Product Listings
CFD Commissions
CFD Financing Rates
CFD Margin Requirements
CFD Corporate Actions
The following video tutorial is also available:
How to Place a CFD Trade on the Trader Workstation
Frequently Asked Questions
What Stocks are available as CFDs?
Large and Mid-Cap stocks in the US, Western Europe, Nordic and Japan. Liquid Small Cap stocks are also available in many markets. Please see CFD Product Listings for more detail. More countries will be added in the near future.
Do you have CFDs on Other Underlying Types?
Yes. Please see IBA Index CFDs - Facts and Q&A and Forex CFDs - Facts and Q&A.
How do you determine your Share CFD quotes?
IBA CFD quotes are identical to the Smart routed quotes for the underlying share. IBA does not widen the spread or hold positions against you. To learn more please go to Overview of CFD Market Models.
Can I see my limit orders reflected on the exchange?
Yes. IBA offers Direct market Access (DMA) whereby your non-marketable (i.e., limit) orders have the underlying hedge directly represented on the deep book of those exchanges at which it trades. This also means that you can place orders to buy the CFD at the underlying bid and sell at the offer. In addition, you may also receive price improvement if another
client’s order crosses at a better price than is available on public venues.
How do you determine margins for Share CFDs?
IBA establishes risk-based margin requirements based on the historical volatility of each underlying share. The minimum margin is 20% for long positions, 25% for short positions. In addition IB applies a concemtration charge margining the two largest positions at 30%, standard margin applied to additional positions. There are no portfolio off-sets between individual CFD positions or between CFDs and exposures to the underlying share. A large position charge applies if the CFD position exceeds 0.5% of the market capitalisation of the underlying share. Please refer to CFD Margin Requirements for more detail.
Are short Share CFDs subject to forced buy-in?
Yes. In the event the underlying stock becomes difficult or impossible to borrow, the holder of the short CFD position will become subject to buy-in.
How do you handle dividends and corporate actions?
IBA will generally reflect the economic effect of the corporate action for CFD holders as if they had been holding the underlying security. Dividends are reflected as cash adjustments, while other actions may be reflected through either cash or position adjustments, or both. For example, where the corporate action results in a change of the number of shares (e.g. stocksplit, reverse stock split), the number of CFDs will be adjusted accordingly. Where the action results in a new entity with listed shares, and IBA decides to offer these as CFDs, then new long or short positions will be created in the appropriate amount. For an overview please CFD Corporate Actions.
Please note that in some cases it may not be possible to accurately adjust the CFD for a complex corporate action such as some mergers. In these cases IBA may terminate the CFD prior to the ex-date.
What do I need to do to start trading CFDs with IBA?
You need to set up trading permission for CFDs in Account Management, and agree to the relevant trading disclosures.
Are there any market data requirements?
The market data for IBA Share CFDs is the market data for the underlying shares. It is therefore necessary to have market data permissions for the relevant exchanges. If you already have set up market data permissions for an exchange for trading the shares, you do not need to do anything. If you want to trade CFDs on an exchange for which you do not
currently have market data permissions, you can set up the permissions in the same way as you would if you planned to trade the underlying shares.
Can I transfer in CFD positions from another broker?
IBA will be glad to facilitate the transfer of CFD positions, subject to the agreement of the other broker. As the transfer of CFD positions is more complex than is the case for share positions, we generally require the position to be at least the equivalent of USD 100,000.
Are charts available for Share CFDs?
Yes.
What account protections apply when trading CFDs with IBA?
CFDs are contracts with IBA as your counterparty, and are not traded on a regulated exchange and are not cleared on a central clearinghouse. Since IBA is the counterparty to your CFD trades, you are exposed to the financial and business risks, including credit risk, associated with dealing with IBA. IBA will handle the client money it receives in accordance
with the rules set out in Part 7.8 of the Corporations Act 2001 (Cth) (Client Money Rules) and to the extent applicable the ASIC Market Integrity Rules (ASX market) 2010. Where required, IBA will pay such client money into a trust account. Please refer to the IBA CFD Product Disclosure Statement for further detail on risks associated with trading CFDs.
What are the maximum a positions I can have in a specific CFD?
There is no pre-set limit. Bear in mind however that very large positions may be subject to increased margin requirements. Please refer to CFD Margin Requirements for more detail.
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.
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