Overview of Share CFDs issued by IB Australia

Overview: 

The following article is intended to provide a general introduction to share-based Contracts for Differences (CFDs) issued by IBA.

For Information on IBA Index CFDs click here. For Forex CFDs click here.

 

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.