The following article is intended to provide a general introduction to index-based Contracts for Differences (CFDs) issued by IB.
For information on IB Share CFDs, please click here.
IB Index CFDs are contracts which deliver the return of a market index. Said differently, the CFD is an agreement between the buyer (you) and IB 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, IB pays you. If it is negative, you pay IB. The CFD contract is marked to market daily with gains/losses settled into your account in cash in the form of variation margin.
IB Index CFDs are traded through your margin account, and you can therefore enter long as well as short leveraged positions. Minimum margin is 5%.
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):
The principal indices in the United States, Europe and Asia Pacific. Please see CFD Product Listings for more detail.
IB does not currently offer Commodity CFDs.
IB 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 the IB Index CFD, we reverse the process:
Actual Futures Price - Interest + Dividends = IB 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.
The margins are the same as for the related future, adjusted for size. Please refer to CFD Margin Requirements for more detail.
No. As the reference instrument is a future, the index CFD is not affected by stock loan availability.
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 30 (IBDE30), which is based on a total return index.
For an overview please see CFD Corporate Actions.
All clients can trade IB CFDs, except residents of the USA, Canada, Hong Kong and Australia. There are no exemptions based on investor type to the residency based exclusions. More details are available in CFD Trading Access.
You need to set up trading permission for CFDs in Account Management, and agree to the relevant trading disclosures. The trading permission covers both Index and Share CFDs. IB 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 segment separately; funds will be automatically transferred to meet CFD margin requirements from your main account. For detailed instructions please see CFD Trading Access and How to Request Trading Permissions for IB CFDs (video).
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 account management, and click through the following tabs: Trade/Configuration/Market Data Subscriptions. 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.
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 Account Management.
IB does not currently have a facility for transferring Index CFD positions. IB will be glad to facilitate the transfer of Share CFD positions. 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.
CFDs 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 CFD trades, you are exposed to the financial and business risks, including credit risk, associated with dealing with IB UK. Please note, however that 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”).Please refer to the the IB UK CFD Risk Disclosure for further detail on risks associated with trading CFDs.
All margin accounts are eligible for CFD trading. Cash or SIPP accounts are not.
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.
No. In exceptional cases we may agree to process closing orders over the phone, but never opening orders.
Below are some useful links with more detailed information on IB’s CFD offering:
The following video tutorials are also available: