european CFDs with IB

L

luisHK

Hi

Anyone trade those with IB ? How do you feel ?

One issue is IB don't cap the commission contrary to regular european stocks but it avoids the transaction tax.

Is IB the counterparty on CDF trades and really neutralizing all trasactions i the underlying ?

Also any idea of the volume available, as on the charts the volume appearing seems to be the one from the underlying stock? Can we get filled on similar size as in the underlying - also when the market is extremely volatile, do CFD quotes continue to follow the underlying's ??

Mostly thinking of french stocks atm

Thanks in advance for all input
 
Hi Luis, let me briefly answer your questions:

Yes, IB is the counterparty, and hedges all CFD trades. The price you get is the Smart-routed execution we get in the underlying, just as if you had traded the share itself.

Since IB CFD trades are directly linked to trades in the underlying, the liquidity available equals that of the underlying. This is true also in volatile markets.

Let me know if I can help with anything else.
 
Thanks Rabbe for your prompt reply.

Yet how does IB profit if it has to assume the transaction tax on the underlying ? I'd assume it can match customers orders against each other but doubt there would be enough volume in some european CFDs

Also I thought IB would take the opposite side of the trade to hedge the risks, but it seems you say IB take the same side of the trade. Where is the hedge ? Also if taking the opposite side, where is the profit as it seems the spread would go agains IB (or any other brokers offering DMA)

I started to check 1 stock and the CFD quotes regulary vary 1 tick from the underlying although it's not much volatile, can other traders confirm it follows the underlying even in case of high volatility ? Also does the liquidity in CFD takes into account the hidden liquidity in the underlying, as your post suggest ?

Thanks again for all input
 
Quote from luisHK:




Also I thought IB would take the opposite side of the trade to hedge the risks, but it seems you say IB take the same side of the trade. Where is the hedge ? Also if taking the opposite side, where is the profit as it seems the spread would go agains IB (or any other brokers offering DMA)

Also does the liquidity in CFD takes into account the hidden liquidity in the underlying, as your post suggest ?
More...


Rabbe, I checked your links and found the answers to the above questions ( I missed your links and got wrong the hedge issue earlier).

I would apreciate a reply to the following though :


How does IB profit if it has to assume the transaction tax on the underlying ? I'd assume it can match customers orders against each other but doubt there would be enough volume in some european CFDs

I started to check 1 stock and the CFD quotes regulary vary 1 tick from the underlying although it's not much volatile. Can other traders confirm CFDs follow the underlying even in case of high volatility, and they benefit identically of the underling's liquidity, including hidden, during market orders ?
 
Luis,
IB does not incur transaction tax for hedging trades (market making exemption). This is also the case for the stamp duty reserve tax in the UK, and for the Belgian stamp duty.

Regarding your observation on prices, did you compare to a Smart-routed price for the stock?
 
Quote from rabbe:



Regarding your observation on prices, did you compare to a Smart-routed price for the stock?
More...

Yes, and so far haven't noticed anything worse than 1 tick (quote, not execution), but haven't looked into it much yet.

Thanks for the info on market maker transsaction tax exemption.
 
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