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.

*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:

Worked Example

Opening the position:

You purchase 30,000 CFDs at $10.00 for $300,000, which you then hold for 30 days.

Closing the position:

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.

Related Articles

• IB Index CFDs - Facts and Q&A
• IB Forex CFDs - Facts and Q&A
• IB Metal CFDs – Facts and Q&A
• Overview of ASIC CFD Rules Implementation at IBKR (Australia) – Retail Investors Only

• Trading of IB FXCFDs is not suitable for all investors, and you should not trade them unless you are an experienced investor with a high risk tolerance and the capability to sustain losses if they occur
• The volatility of foreign exchange rates and interest rates may quickly cause significant losses. Forex CFDs employ leverage that further amplifies the volatility relative to your investment and you may lose more than you have invested. In addition, IB FXCFD roll over interest may turn from a credit to a debit due to changes in interest rates
• You are required to maintain sufficient equity in your account at all times to cover IBSJs maintenance margin requirement. There are no grace-periods and IBSJ does not issue margin calls. Your equity is calculated in real time and should it become insufficient, IBSJ will immediately and automatically liquidate positions to bring your account into margin compliance. Real time liquidations aim to minimize the risk that your account equity becomes negative, but they cannot eliminate that risk. Should your equity become negative you are required to deposit additional funds to cover the deficit
• The price IBSJ displays to you for IB FXCFDs is based on the prevailing foreign exchange market. However there is no guarantee for executions at that price. Slippage may occur for large trades or in fast moving markets and during heavily traded hours
• Moreover, your ability to establish or close positions on a timely basis is not guaranteed. It may become difficult to display quotes during major holidays or during hours when foreign exchange trading is not active. IBSJ may display prices that deviate from a fair market due to system-malfunctions or failures, or erroneous quotes that IBSJ may receive from market participants or for other reasons (off-market prices). IBSJ will adjust or cancel trades executed with off-market prices
• IB FXCFDs are over-the-counter trades between you and IBSJ. They are not traded on any exchange or cleared by any central counterparty. You are therefore exposed to counterparty risk and should IBSJ become insolvent you may not be able to fully recoup your investment, or at all

Please contact IBSJs Client Service Department should you have questions about the content of this summary and read the full risk disclosure carefully before commencing trading. The risk disclosure is available in Account Management when you request IB FXCFD trading permissions, and on IBSJs web site.

European regulators, as part of EMIR, issued technical rules concerning Risk Mitigation Techniques for derivatives not cleared by a Central Counterparty (“CCP”), which detail how the regulators expect these products to be margined from 1st March 2017. In general customers trading products subject to these rules are required to exchange variation margin.

Interactive Brokers (U.K.) Ltd. (“IBUK”) provides Contracts for Difference (‘CFDs’) that fall under these rules, and is your counter party to these trades. IBUK wishes to inform you how IBUK provides information regarding variation margin and reconciliation arrangements. This does not represent a material change from our current practice.

Variation Margin – Applicable where you are classified as FC or NFC+

All financial counterparties (‘FC’) and larger non financial counterparties (‘NFC+’) are subject to the EMIR variation margin rules for OTC derivatives. Whether larger non financial counterparties are subject to the rules is determined by reference to whether their 30-day rolling average of the gross notional OTC derivative positions entered into for non-hedging purposes are above specified clearing thresholds (eg EUR1bn for equity derivatives). IBUK ensures variation margin is exchanged with its counterparties with respect to OTC derivative transactions not centrally cleared by CCP.

IBUK provides customers with timely confirmations of trades each day via two secure platforms: by displaying them on our Trader Work Station (“TWS”) and via the Trade Confirmations and Daily Activity Statements in Account Management. The marked-to-market value of your OTC derivative contracts are shown in your Daily Activity statement.

The variation margin rule requires that variation margin is calculated on a daily basis based on the values of all the outstanding derivatives contracts under the IBUK Client Agreement for Products Carried by IBUK (the “Agreement”) on the previous business day.

Where this marked-to-market value of your transactions reflects a credit exposure for IBUK, IBUK collects variation margin equal to the positive mark-to-market value of its OTC derivatives. The variation margin collection is achieved through reduction in the net equity value available, an offset and/or liquidation of positions in the posting account. You may refer to the supplemental information about margin and the Agreement on the IB UK website for further details. Where the marked-to-market value reflects a credit to you, IBUK will reflect this via an increase in your net
equity.

Whilst the variation margin rule requires that variation margin is calculated on a daily basis, IBUK further expects that clients monitor their accounts continuously, including intraday, so that at all times the account contains sufficient equity to meet margin requirement as calculated by IBUK.

Reconciliation

Activity Statements are provided on a daily, monthly and annual basis. Customers can download this information using a "flex query" tool (which is available in our "account management system) in CSV type format.

You may reconcile the OTC positions detailed on these Trade Confirmations and Activity Statements account against your own records. The regulations state that you should reconcile your positions, contract information, valuation(s) and profits and losses and any related information.

If you note any discrepancies, you can contact IBUK customer service. Contact information for Interactive Brokers customer service is available on the IB website at:
https://www.interactivebrokers.com/en/?f=customerService.

The process for resolving any dispute is discussed in your client agreement with us.

Please note that the rules also require customers of firms that carry portfolios on a gross basis to carry out portfolio compression with the firm but this is not relevant as IBUK maintains your OTC positions on a net basis.

The rules also detail how often particular types of customers need to conduct these
reconciliations:

If you are an FC or a an NFC+ the rules require you to conduct portfolio reconciliations at the following frequencies:
• Daily, whenever you have 500 or more open OTC contracts;
• Weekly, if you have between 51 and 499 OTC contracts open at any time during the week;
• Quarterly, if you have 50 or fewer contracts open at any time during the quarter.
 

If you are a non-financial counter party not meeting the criteria to be an NFC+ (ie “NFC-“) you are required under the rules to carry out portfolio reconciliations at least:
• Quarterly, if you have more than 100 open OTC contracts open at any time in the quarter;
• Annually, if you have 100 or fewer open contracts at any time in the year.

Please note that this communication is not intended to serve as legal advice.

Interactive Brokers (U.K.) Limited

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

For information on IBKR Share CFDs, please click here. For Forex CFDs click here.

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 us.

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 of IBKRs European entities, including so-called F segments)

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

Our Index CFDs are contracts which deliver the return of a market index. Said differently, the CFD is an agreement between the buyer (you) and us to exchange the difference between the current value of an index, and its value at a future time. If you hold a long position and the difference is positive, we pays you. If it is negative, you pay us.

Our Index CFDs are traded through your margin account, and you can therefore enter long as well as short leveraged positions.

The price of the Index CFD is directly related to the price of the exchange-quoted related future. The price-movement of the Index CFD tracks the movement of the related future, although the price levels differ by an adjustment for interest and dividends (fair-value adjustment).

For example (actual quotes):

IIndex CFD Price Determination: As discussed, our Index CFDs track the related future, adjusted for fair value. The synthetic index level is very close to the cash index but may differ somewhat as explained below.

In the futures market fair value is the equilibrium price for a futures contract. It is the price at which an investor effectively pays the appropriate rate of interest and is compensated for the dividends he forgoes by holding the future rather than the underlying shares.

The fair value is determined by adjusting the cash index as follows, taking into account the time remaining to expiry:

Cash Index Value + Interest - Dividends = Future at Fair Value

To determine the value of the IBKR Index CFD, we reverse the process:

Actual Futures Price - Interest + Dividends = IBKR Index CFD Value

The result is not necessarily the same value as the cash index. This is because the starting point is the actual price of the future, and the future may trade above or below its fair value.

Having established the level for the synthetic index, the actual CFD quotes show spreads and ticks that reflect those of the underlying future. IB charges a commission rather than widening the spread, enabling a transparent comparison between the returns of the Index CFD and the related future.

Low Commissions and Financing Rates: Unlike other Index CFD providers IBKR charges a transparent commission, rather than widening the spread of the related future. Depending on the index, commission rates are only 0.005% - 0.01%. Overnight financing rates are just benchmark +/- 1.5%.

Transparent Quotes: Because IBKR does not widen the spread, the Index CFD quotes accurately  represent the spreads and price movements of the related future, and there are no re-quotes. What you see is what you get.

Flexible Exposure to Major Markets: IBKR Index CFDs are available for the main US, European and Asia Pacific indices. They can be traded in lots as small as 1X the index level, a fraction of the size of the related futures. And unlike the related futures, they do not need to be rolled over. You can trade all European and US IBKR Index CFDs from 09:00 - 22:00 CET.

Margin Efficiency: IBKR Index CFDs are margined at the same low rates as the related future, adjusted for contract size (subject to a minimum of 5%). Retail clients are subject to regulatory minimum initial margins of 5% or 10% depending on the index. Please see ESMA CFD Rules Implementation at IBKR for additional detail and examples.

We also offer intraday margin rates on Index CFDs at a level consistent with that of the related futures contract. Intraday rates are generally set at 50% of the overnight rate and are offered during a time frame which begins at the start of liquid trading hours and ends 15 minutes before the liquid trading close. Retail clients are subject to the ESMA minimum margin requirements both intraday and overnight.

*Total Hours may be restricted to Liquid Hours during periods of extreme market volatility

**Previous day

Dividend Adjustment: Based on ordinary dividends for the constituents of each index. Dividends are accrued on the ex-date and settled T + 2.

Corporate Action Adjustments: None for the CFD. Corporate actions are reflected in the index level.

Trading Permissions: Same as for Share CFDs.

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

Worked Trade Example (Professional Clients):

Opening the Position

You purchase 10 IBUS30 CFDs at $23,534.48 for USD 235,344.80, which you then hold for 5 days.

Closing the Position

CFD Resources

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

CFD Product Listings

CFD Commissions

CFD Financing Rates

CFD Margin Requirements

CFD Corporate Actions

CFD Contract Specifications

The following video tutorial is also available:

How to Place a CFD Trade on the Trader Workstation

Frequently asked Questions

What Indices are available as CFDs?

The principal indices in the United States, Europe and Asia Pacific. Please see CFD Product Listings for more detail.

Do you have CFDs on commodities?

IBKR does not currently offer Commodity CFDs.

How do you determine your Index CFD quotes?

IBKR Index CFDs track the related future, adjusted for fair value. It is in effect a synthetic index level that is very close to the cash index but may differ somewhat as explained below.

In the futures market fair value is the equilibrium price for a futures contract. It is the price at which an investor effectively pays the appropriate rate of interest and is compensated for the dividends he forgoes by holding the future rather than the underlying shares.

The fair value is determined by adjusting the cash index as follows, taking into account the time remaining to expiry:

Cash Index Value + Interest - Dividends = Future at Fair Value

To determine the value of our Index CFD, we reverse the process:

Actual Futures Price - Interest + Dividends = our Index CFD Value

The result is not necessarily the same value as the cash index. This is because the starting point is the actual price of the future, and the future may trade above or below its fair value.

Having established the level for the synthetic index, the actual CFD quotes show spreads and ticks that reflect those of the underlying future. IBKR charges a commission rather than widening the spread, enabling a transparent comparison between the returns of the Index CFD and the related future.

How do you determine margins for Index CFDs?

The margins are the same as for the related future, adjusted for size, including lower rates intraday. Please refer to CFD Margin Requirements for more detail. Retail clients are subject to regulatory minimum initial margins of 5% or 10% depending on the index. Please see ESMA CFD Rules Implementation at IBKR for additional detail.

Are short Index CFDs subject to forced buy-in?

No. As the reference instrument is a future, the index CFD is not affected by stock loan availability.

How do you handle dividends and corporate actions?

The index level itself is adjusted for corporate actions, and no direct adjustments to the CFD are
necessary. Index CFDs are however adjusted for dividends as the underlying future is typically based on a price index. The only exception among the currently available IB Index CFDs is Germany 40 (IBDE40), which is based on a total return index.

For an overview, please see CFD Corporate Actions.

Can anyone trade our CFDs?

All clients can trade IBKR 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.

What do I need to do to start trading CFDs with IBKR?

You need to set up trading permission for CFDs in Client Portal and agree to the relevant trading disclosures. If your account is with IBKR (UK) or with IBKR LLC, IBKR will then 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-account separately, funds will be automatically transferred to meet CFD margin requirements from your main account.  

If your account is with another IBKR entity, only the permission is required; an additional account segment is not necessary.

Are there any market data requirements?

The market data for IB Index CFDs is free, but you need to subscribe to it for system reasons. It is a global permission (like FX), so you only need to subscribe once. To do this, log into Client Portal and click the User menu (head and shoulders icon in the top right corner) followed by User Settings. Under Trading Platforms select the Configure (gear) icon next to Market Data Subscriptions. Click the Configure (gear) icon next to Current GFIS Subscriptions to review what other services you may be interested in. Alternatively, you can set up an Index 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 Client Portal.

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.

Can I transfer in CFD positions from another broker?

IB does not currently have a facility for transferring Index CFD positions. 

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

All margin and cash accounts are eligible for CFD trading. 

What are the maximum positions I can have in a specific Index CFD?

There is no pre-set limit for position size, but please be aware that trade-size restrictions apply to Index CFDs. Please see the table at the beginning of this document 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.