I have no experience with stock CFDs and wonder how short CFD positions compare to short stock positions? Is it correct that I don't pay any stock borrowing fees with CFDs? Is it correct that the probability of a forced buy-in is much lower for a short CFD position as compared to short stock position? Should I be worried about a forced buy in when a stock becomes unavailable for shorting on IB? Thank you for your help!
IB is DMA, your order hits the books and therefore your CFD positions aren't that different from a position in the underlying in practical terms, except for generally getting better margins (not always).
Yes. Thank you very much! I found the same on IB website ("An additional borrow charge is levied on short CFD Positions, determined for each stock individually based on market borrow rates.") However, does it mean that I should always consult the stock borrowing availability whenever I sell a stock CFD short? I reviewed a few trade examples on the net, and it looks like they all oversee the stock borrowing interest associated with the CFD short sell (which can be as high as 90% for some stocks)? Why is that? Is it just an omission or do other brokers offer a different fee schedule?
IB's CFDs are slightly different as you get the same spreads and prices as listed in the market. The financing charges are just +/- 1.5% of the benchmark. The pricing by IB is transparent so you see all fees. If a firm is hedging a CFD, they will certainly have to embed those costs in the pricing (many do it via a wider quote or via their already much higher financing charges). Stock loan prices will vary greatly and can get extremely high for the hard to borrow stocks. You definitely should consider that costs whether you are trading CFDs, stocks or derivatives. Note due to regulations, CFDs are not available to clients in all countries. Here is an overview of the IB share product. http://ibkb.interactivebrokers.com/node/1912 Here is an overview of the IB index product. http://ibkb.interactivebrokers.com/node/1984 (some of which I'm pasting below) Pasted from the link above: IB Index CFDs - Facts and Q&A Background: 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 Introduction 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): Low Commissions and Financing Rates: Unlike other Index CFD providers IB 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 IB 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: IB 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 IB Index CFDs from 09:00 - 22:00 CET. Margin Efficiency: IB Index CFDs are margined at the same low rates as the related future, adjusted for contract size (subject to a minimum of 5%). Specifications: Underlying: Synthetic index based on fair-value adjusted near-month future. IB 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 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.
Thank you for your answer! I absolutely love IB (especially after TD Waterhouse)! Just one minor question: I understand you will disable shorting stock CFD if stock becomes unavailable for shorting. Is it correct?
def: Thanks for the information. Will IB start offering CFD trading in pre- and after-hours anytime soon? At the moment, if there is any mishap with execution (as there has been) before market close, we're stuck with the position overnight as CFD orders don't participate in the AH. I believe this limits the attraction to CFDs for many as during earnings, a large portion of volume happens in non-regular hours. I've also notified the CS months ago about updating the list of CFDs offered on the website, currently it's per country and not per exchange (which would make more sense), therefore it's missing around 200 equity CFDs just on the US market - all of China, Singapore, Canada, Brazil, Ireland for example. It would be nice if there was an up-to-date list of all CFD contracts offered by IB that was easily retrievable.