Contracts for Difference. Andrew Wilkinson

Transcription

1 Contracts for Difference Andrew Wilkinson

2 Disclaimer CFD trading of UK FTSE listed stocks is available through Interactive Brokers (U.K.) Limited. Trading of other products such as stocks, options, Australian CFDs and futures is available through our U.S. affiliate, Interactive Brokers LLC, a U.S. registered company regulated by SEC and CFTC. A CFD is a leveraged product which carries a high degree of risk and your loss may exceed your initial investment. Therefore, CFD trading may not be suitable to all investors. You must ensure that you understand the risks involved when trading this product and seek independent advice if necessary. Interactive Brokers (U.K.) Limited is authorized and regulated by the U.K. Financial Services Authority register entry number

3 What is a Contract for Difference or a CFD? A CFD is an agreement to exchange the difference between the opening and closing value of a share, index or commodity. An agreement between client and Interactive Brokers CFDs intended to mirror performance of the underlying For equities aims to mimic corporate actions Available for UK and Australia 3

4 Facts about CFDs CFDs attempt to mirror the performance of a stock Exempt from stamp duty in certain areas Derivative-like without several associated drawbacks Employ leverage Minimum of single share with no maximum Never expire No time value Requires no rollover Long and short positions are available 4

5 Background on Stamp Tax Introduced in 1986 as a revenue raiser by HM Treasury Gave rise to emergence of CFD investing Stamp Duty Reserve Tax on shares = 0.5% or 5.00 per 1,000 in stock 5

6 Why Choose CFDs? Long or short entry designed to match share price move Stamp Duty - 10,000 trade incurs 50 tax Efficiency through leverage 6

7 IB Advantage Integrated Software Low Commissions Pricing Leverage Low Interest Costs 7

8 TWS Integrated Software 90 Global electronic venues Stocks, options, futures, forex, bonds, funds, spot gold and CFDs Universal Account 8

9 Low Commissions Trade Value * 0.08% with minimum 6.00 E.g. 10,000 nominal trade value incurs 8.00 fee 9

10 Pricing CFD quotes use reference rate based on market quote LSE, BATS, Nasdaq OMX & CHI-X IB SmartRouter SM creates reference rate by constantly scanning prices across exchanges IB never widens spread IB passes on best execution to client Toolbox of order types to assist investors 10

11 Leverage Control greater notional amount of an investment By magnifying price movements - works both ways More favorable than stock trading CFD 10:1 leverage Shares 3:1 leverage E.g. 10,000 CFD transaction could control 100,000 11

12 Low Interest Costs Trading costs impact investors bottom line Investors employing leverage must borrow from broker IB charges a low spread above a standard benchmark We challenge you to find a better combination of low commissions and low interest rates 12

13 How Contracts for Difference Replicate the Underlying Share Price The reference rate is linked to underlying CFD buyer expects underlying to rise CFD seller expects underlying to fall CFD is difference between opening and closing prices 13

14 Tax implications Compare transaction costs of 10,000 CFDs against 10,000 shares CFD Commission = Share Commission = 6.00 Plus zero Stamp Duty Plus Stamp Duty 14

15 Financing Leveraged Trades This example uses 10:1 leverage 30,000 nominal trade controls 300,000 notional value Example does not consider daily price fluctuations 15

16 Conclusion IB CFDs are perfectly complimented by IB s leverage, low commissions and low interest costs IB Single Universal Account offers access to multi-asset class trading at more than 90 electronic venues globally See IB MobileTrader offering for busy investors Gold Winner for Trade2Win Best CFD Broker To start trading UK CFDs, configure Trading Permissions and sign up for Market Data for the London Stock Exchange (LSE) through Account Management. For a list of available CFD s: CFD Products 16