IB + CFDs

[Nick Radge]

From IB today:

Quote:

CFD Trading for Australian Clients

IB Australia is pleased to announce the launch of its CFD offering

Clients of IB Australia Pty Ltd (“IBA”) can now trade IBA issued CFDs on over 6,200 Share and Index CFDs covering the principal markets in Australia, USA, Europe, and Asia, as well as Forex CFDs in 85 tradeable currency pairs.

An IBA CFD allows you to increase the leverage of your trading capital when seeking exposure to an underlying share, index or currency pair, compared to buying the relevant underlying instrument directly. IBA’s CFD offering permits a similar degree of leverage as IB’s international affiliates offer for margin trading.

You should read and ensure you understand IBA’s Product Disclosure Statement (PDS) which contains important information about the risks and features of IBA CFDs before trading these financial products.

Benefits of IB Australia CFDs at a glance

Transparent, Low Commissions and Financing Rates – The starting commission rate is only 0.05% (5 basis points) on all share CFDs, with rates as low as 0.02% (2 bps) for active traders. Overnight financing rates as low as 0.5% (50 bps). We challenge you to find a better offering. Index CFD commissions are 0.005% (0.5 bps) or 0.01% (1 bps) depending on the index. Forex CFDs start from 0.002% (0.2 bps) and drop to 0.05 bps for active traders.

Leveraged Trading – Trading CFDs allows IBA clients to increase their exposure to an underlying instrument while using significantly less capital than taking the equivalent exposure in the underlying instrument itself.

Efficient CFD Reference Pricing – Unlike many other CFD brokers, IBA does not widen the spread relative to that of the underlying instrument. The IBA Share CFD price reflects the exchange-quoted price for the underlying share, using IBAs efficient Smart Routing technology in the same way as it does for shares. Your CFD reference price and trade executions are therefore the same as for the underlying share. Index CFDs mirror the spreads and ticks of the reference future, and Forex CFDs are based on Smart-routed quotes from 14 of the world’s largest forex dealers. IBA only makes money from commissions and financing.

For additional information about IBA CFDs please see our website.

Risks Associated with Trading IB Australia CFDs

Investors should also be aware of the risks associated with trading IBA CFDs. CFDs are not suitable for all investors. Due to the leveraged nature of CFDs, trading these products may expose clients to losses which may exceed their initial investment. Depending on market movements, the use of leverage may lead to large losses as well as large gains, as leverage effectively magnifies both gains and losses.

You should consider whether CFDs are appropriate for you in the light of your objectives, financial position and needs and you should not trade CFDs unless you understand and accept the risks and have the capability to sustain losses if they occur. You should read and carefully consider the risks set out in our Product Disclosure Statement (PDS)

You should also ensure you review our Financial Services Guide (FSG) and the legal terms and conditions and product specifications that apply to IBA CFDs before trading these products.

Interactive Brokers Client Services

[SaidBitar]

What is the advantages or disadvantages of trading the same strategy on cfd instead of stocks
From what i know that ib claim that the cfd price is the same as the share price and regarding leverage it can go to x10 instead of x4

[Nick Radge]

The only advantage is:

(1) higher leverage
(2) sell short.

CFDs are a very lucrative business for these brokers as it attracts a high amount of uneducated punters who willingly pay considerable commissions.

The average CFD account size in Australia is $7000

[LeeDanello]

Looks like the MOC systems will be out the window. No point spending extra for getting a margin account.

[ScottMcNab]

Haven’t looked through in detail yet but hopefully may transfer MOC systems to CFD’s rather than stocks ? 0.05/5 comms seems attractive at first glance

[Nick Radge]

You’ll need to factor in the funding fee.

[SaidBitar]

Scott McNab wrote:

Haven’t looked through in detail yet but hopefully may transfer MOC systems to CFD’s rather than stocks ? 0.05/5 comms seems attractive at first glance

So i played a bit with CFDs tonight and here what i found
1- I am not sure how much paper trading account reflects the reality but seems like liquidity is a BIG problem. so i tried with stocks and CFDs the same orders but different instruments Stocks were filled directly while CFDs as if there is no liquidity over there you see the order getting filled very slowly for example it took 3 minutes to fill one order that was immediate fill in stocks

2- i tried to place MOC order with the API and manually it was rejected saying that MOC and LOC can only be placed during market hours. which is strange since there is still time to the close

anyhow the liquidity is big concern and if it is this thin on US stocks i can’t imagine it on ASX stocks so may be the additional commission is OK

[Nick Radge]

There are two types of CFDs.

Synthetic pricing which is done by a market maker and is not executed on any exchange. These can badly reflect the underlying price during fast market environments and also will not allow many types of orders.

Direct Market Access (DMA) which is where the order is actually routed to the exchange and ‘appears’ as a normal trade in the depth screen. The DMA platform is the better model because it better reflects the underlying market all of the time rather than most of the time. However, DMA CFD providers must use a Member of the ASX to execute. For example, IG Markets, the largest CFD provider in Australia, route their orders through Deutsche Bank.

I would suggest IBA is the latter model as they are a member of the ASX.

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