IBKR Application of CFD Concentration Margin for Retail Clients

Background: 

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 60% adverse move on the two largest positions and a 10% adverse move on the remaining positions. The total loss is applied as the initial margin requirement if it is greater than the standard requirement.

However in order to avoid excessive initial margin requirements on relatively small positions, we apply a USD 100k rebate to the Initial Concentration Margin (the result cannot be negative);
appliedConcentration = max(calculatedConcentration – USD 100k,0).

The maintenance margin is 50% of the appliedConcentration margin, as prescribed by ESMA.

The effect of the rebate is to eliminate the concentration charge for concentrated positions under USD 250k equivalent. The charge will increase gradually thereafter, so that e.g. a concentrated position of USD 500k carries an initial margin of 40%, and a position of 1 million 50%. These examples assume that a client has maximum 2 positions; additional positions will reduce the aggregate charge.

Examples (Applied Margin in Bold)

Concentrated positions only

1. Small size, concentration eliminated
Initial Margin   Concentration Charge   Standard  
Position USD USD % USD %
1 100,000 60,000 60% 20,000 20%
2 50,000 30,000 60% 15,000 30%
Total 150,000 90,000 60% 35,000 23%
After Rebate   0 0%    
 2. Concentration applies at reduced rate

Initial Margin   Concentration Charge   Standard  
Position USD USD % USD %
1 250,000 150,000 60% 50,000 20%
2 150,000 90,000 60% 45,000 30%
Total 400,000 240,000 60% 95,000 24%
After Rebate   140,000 35%    

Additional Positions

3. Concentration further reduced by additional positions

Initial Margin   Concentration Charge   Standard  
Position USD USD % USD %
1 250,000 150,000 60% 50,000 20%
2 150,000 90,000 60% 45,000 30%
3 100,000 10,000 10% 20,000 20%
4 50,000 5,000 10% 10,000 20%
5 50,000 5,000 10% 10,000 20%
6 50,000 5,000 10% 10,000 20%
Total 650,000 265,000 41% 145,000 22%
After Rebate   165,000 25%    

Risk Warning

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

69% 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.