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

For Information on IBKR Index CFDs click here. For Forex CFDs click here. For Precious Metals click here.

Topics covered are as follows:

I.    CFD Definition
II.   Comparison Between CFDs and Underlying Shares
III. CFD Tax and Margin Advantage
IV.  US ETFs
V.   CFD Resources
VI.  Frequently Asked Questions

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 IBKR.

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

I.  Overview

IBKR CFDs are OTC contracts which deliver the return of the underlying stock, including dividends and corporate actions (read more about CFD corporate actions).

Said differently, it is an agreement between the buyer (you) and IBKR 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, IBKR pays you. If it is negative, you pay IBKR.

Our Share CFDs offer Direct Market Access (DMA). Our Share CFD quotes are identical to the Smart-routed quotes for shares that you can observe in the Trader Workstation. Similar to shares, 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.

To compare IBKR’s transparent CFD model to others available in the market please see our Overview of CFD Market Models.

We currently offer approximately 8500 Share CFDs covering the principal markets in the US, Europe and Asia. Eligible shares have minimum market capitalization of USD 500 million and median daily trading value of at least USD 600 thousand.  Please see CFD Product Listings for more detail. 

Most order types are available for CFDs, including auction orders and IBKR Algos. 

CFDs on US share can also be traded during extended exchange hours and overnight. Other CFDs are traded during regular hours.

II.   Comparison Between CFDs and Underlying Shares

*IB LLC and IB-UK accounts.

**EEA area clients cannot trade US ETFs directly, as they do not publish KIDs.

III. CFD Tax and Margin Advantage

Where stamp duty or financial transaction tax is applied, currently in the UK (0.5%), France (0.3%), Belgium (0.35%) and Spain (0.2%), it has a substantially detrimental impact on returns, particular in an active trading strategy. The taxes are levied on buy-trades, so each time you open a long, or close a short position, you will incur tax at the rates described above.

The amount of available leverage also significantly impacts returns. For European IBKR entities, margin requirements are risk-based for both stocks and CFDs, and therefore generally the same. IB-UK and IB LLC accounts however are subject to Reg T requirements, which limit available leverage to 2:1 for positions held overnight.

To illustrate, let's assume that you have 20,000 to invest and wish to leverage your investment fully. Let's also assume that you hold your positions overnight and that you trade in and out of positions 5 times in a month.

Let's finally assume that your strategy is successful and that you have earned a 5% return on your gross (fully leveraged) investment.

The table below shows the calculation in detail for a UK security. The calculations for France, Belgium and Spain are identical, except for the tax rates applied.

The following table summarizes the reduction in return for a stock investment, by country where tax is applied, compared to a CFD investment, given the above assumptions.

IV. US ETFs

EEA area residents who are retail investors must be provided with a key information document (KID) for all investment products. US ETF issuers do not generally provide KIDs, and US ETFs are therefore not available to EEA retail investors.

CFDs on such ETFs are permitted however, as they are derivatives for which KIDs are available.

Like for all share CFDs, the reference price for CFDs on ETFs is the exchange-quoted, SMART-routed price of the underlying ETF, ensuring economics that are identical to trading the underlying ETF.

V.   Extended and Overnight Hours

US CFDs can be traded from 04:00 to 20:00EST, and the again overnight from 20:00 to 03:30 the following day. Trades in the overnight session are attributed to the day when the session ends, even if a trade is entered before midnight the previous day. This has implications for corporate actions and financing.

Trades entered before midnight on the day  before ex-date will not have a dividend entitlement. Trades before midnight will settle as if they had been traded the following day, delaying the start of financing. 

VI.   CFD Resources

Below are some useful links with more detailed information on IBKR’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

VII.  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 asset classes?

Yes. Please see IBKR Index CFDs - Facts and Q&A, Forex CFDs - Facts and Q&A and Metals CFDs - Facts and Q&A.

How do you determine your Share CFD quotes?

IBKR CFD quotes are identical to the Smart routed quotes for the underlying share. IBKR 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. IBKR offers Direct market Access (DMA) whereby your non-marketable (i.e. limit) orders have the underlying hedges directly represented on the deep books of the exchanges on which they trade. 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 yours at a better price than is available on public markets.

How do you determine margins for Share CFDs?

IBKR establishes risk-based margin requirements based on the historical volatility of each underlying share. The minimum margin is 10%, making CFDs more margin-efficient than trading the underlying share in many cases.  Retail investors are subject to additional margin requirements mandated by the European regulators. There are no portfolio off-sets between individual CFD positions or between CFDs and exposures to the underlying share. Concentrated positions and very large positions may be subject to additional margin. 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 may become subject to buy-in.

How do you handle dividends and corporate actions?

IBKR 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. stock-split, reverse stock split), the number of CFDs will be adjusted accordingly. Where the action results in a new entity with listed shares, and IBKR 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 IBKR may terminate the CFD prior to the ex-date.

Can anyone trade IBKR 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 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 initial 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 IBKR 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 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.

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?

IBKR does not facilitate the transfer of CFD positions at this time.

Are charts available for Share CFDs?

Yes.

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 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.

Unless an account holds solely long stock, bond, option or forex positions which have been paid for in full (i.e., no margin) and/or contains limited risk derivative positions such as option spreads, it is at risk of losing more than the original investment.

In the case of portfolios where the risk is indeterminable, there is no mechanism whereby the account holder can specify, at the portfolio level, a maximum dollar threshold of losses which, if reached, would limit their liability. IB does, however, provide a variety of tools and settings designed to assist account holders with managing and monitoring their exposure, including specialized order types, alerts and the Risk Navigator. A brief overview of each is provided below:

Order Types

Account holders may manage exposure on an individual trade level through several order types designed to limit risk. These order types include, but are not limited to: Stop, Adjustable Stop, Stop Limit, Trailing Stop and Trailing Stop Limit Orders. All of these order types allow you to specify an exit level for your individual positions based on your risk tolerance. For example, an account holder long 200 shares of hypothetical stock XYZ at an average price of $20.00 seeking to limit their loss to $500.00 could create a Stop Limit order having a Stop Price of $18.00 (the price at which a limit sell order is triggered) and a Limit Price of $17.50 (the lowest price at which the shares would be sold).  It's important to note, however, that while a Stop Limit eliminates the price risk associated with a Stop order where the execution price is not guaranteed, it exposes the account holder to the risk that the order may never be filled even if the Stop Price is reached.  For instructions on creating a Stop Limit order, click here.

Alerts

Alerts provide account holders the ability to specify events or conditions which, if met, trigger an action. The conditions can be based on time, trades that occur in the account, price levels, trade volume, or a margin cushion. For example, if the account holder wanted to be notified if their account was nearing a margin deficiency and forced liquidation, an alert could be set up to send an email if the margin cushion fell to some desired percentage, say 10% of equity. The action may consist of an email or text notification or the triggering of a risk reducing trade. For instructions on creating an Alert, click here.

Risk Navigator

The Risk Navigator is a real-time market risk management platform contained within the TraderWorkstation, which provides the account holder with the ability to create 'what-if' scenarios to measure exposure given user-defined changes to positions, prices, date and volatility variables which may impact their risk profile. For information on using an Risk Navigator, click here.

Equity with Loan Value (ELV) – Forms the basis for determining whether a client has the necessary assets to either initiate or maintain security positions. Equals cash + stock value + bond value + mutual fund value + European and Asian options value (excludes market value U.S. securities & futures options and cash maintained in futures segment). 

The particular regulation which determines the minimum amount of margin collateral that each broker is required to collect from clients transacting in U.S. exchange listed products generally depends upon the following 3 factors:

1. Product Classification - the principal determinant of regulatory oversight is based upon whether the product is classified as a security or commodity. Security products, including stocks, bonds, options and mutual funds are regulated by the Securities and Exchange Commission (SEC).  Commodity products, which include futures contracts and options on futures contracts, are regulated by the Commodities Futures Trading Commission (CFTC).  Single stock futures, a special class of futures contracts, are considered a hybrid product subject to joint regulation by the SEC and CFTC.

In the case of security products, the US central bank referred to as the Federal Reserve (FRB) holds responsibility for regulating the extension of credit by brokers and dealers.  This is accomplished through Regulation T, or Reg T as it is commonly referred, which provides for establishment of a margin account and which imposes the initial margin requirement and payment rules on certain securities transactions.  For example, on stock purchases, Reg T currently requires an initial margin deposit by the client equal to of 50% of the purchase value, allowing the broker to extend credit or finance the remaining 50%.  Reg T does not establish margin requirements for securities options which fall under the jurisdiction of exchange rules (subject to SEC approval).  In addition, the FRB has excluded from Reg T the authority to establish either initial or maintenance margin requirements on securities positions held in a portfolio margining account.  here margin authority resides with the security exchanges whose rules are subject to SEC approval. 

The authority for establishing margin rates on commodity products resides with the listing exchanges, with the exception of broad based stock index futures, for which the FRB has delegated authority to the CFTC.

In the case of single stock futures, margin is set by the listing exchange and subject to SEC approval to the extent the position is carried in a securities account, and subject to an agreement that the margin be equivalent whether held in a securities or commodities account.  Margin for single stock futures are currently set at 20% of the underlying stock value.

2. Initial or Maintenance - initial margin generally refers to the amount of money or its equivalent that the customer must deposit in order to initiate the position and maintenance margin the amount of equity which must be maintained in order to continue holding the position. As noted above, Reg T controls the initial margin requirement on securities transactions.  The rules of the listing exchanges specify the maintenance margin requirements on security transactions subject to SEC approval.  The maintenance margin requirement for long stock positions is currently set at 25% although brokers often establish 'house margin' requirements in excess of that, particularly where the security is considered low-priced or subject to volatile price changes.

Commodities exchanges establish both the initial and maintenance margin requirements for products which they list (subject to provisions for broad based index futures and single stock futures as noted above).

3. Listing Exchange - as noted above, in the case of US securities products the listing exchange has the authority to establish rules for the maintenance margin requirement on positions held in a Reg T margin account and initial and maintenance margin (currently the same) for positions held in a portfolio margin account. Exchange margin rules, however, require prior SEC approval which acts to ensure that margin requirements are set  in a consistent manner across exchanges.  

Subject to the provisions noted above, commodities exchanges maintain authority to establish both initial and maintenance margin requirements.  As a general rule, US commodities exchanges employ the same risk-based margining methodology referred to as SPAN for determining the margin requirement on listed positions with each exchange specifying the relevant SPAN input factors (e.g., Price Scan Range, Volatility Scan Range, Spread Charges, Combined Commodity offsets).