Stock CFD Introduction

Japan Stock CFDs Introduction

Overview

Cost

IB SmartRoutingSM

FAQs

OTC Contracts For Difference (CFD) markets are generally organized along one of three models:

  • Direct Market Access (DMA)
  • Agency Broker Model (ABM)
  • Market Maker Model (MMM)

Interactive Brokers ("IBKR") promotes price transparency by offering Japan Stock CFD through a Direct Market Access model, the most transparent of the three models.

In the DMA model, the provider hedges the CFD order immediately in the underlying physical market and the CFD is executed at the price of the hedge. This serves to enhance pricing transparency and the provider's compensation is typically based solely upon a commission rather than a mark-up or mark-down.

With the DMA model, professionally-oriented IBKR clients have the ability to add quotes to the exchange book in the same way they would trading stocks. Because IBKR matches all CFD orders immediately with a hedge-order, a non-marketable CFD order will create a matching non-marketable order for the underlying share on the exchange. Clients can view "their order" on the Level 2 book.

In addition, all orders (whether marketable or not) benefit from IB SmartRouting technology which promotes best execution by routing the order to one of several underlying markets (TSEJ, Cboe-Japan, Japannext, or internally vs. other client orders).



Product Overview


Underlying Asset

Approximately 1,100 Stocks, including 225 Constituents
Excluding ETFs and REITs as underlying assets.

Trading Hours

9:00–11:30|12:30–15:00

Order Placement Hours

24 hours on business days
Except in the event of system maintenance outside trading hours.

Trading Unit

1CFD = 1 share of underlying stock

Basic Order Types

LMT, MKT, STP, STP LMT, MOC, LOC DAY, GTC, IOC, GTD, DTC

Spread

The same spread at the exchange is applied.

Individual Account Margin Requirement

Trade Value × Minimum 20%

Institutional Account Margin Requirement

Trade Value × Minimum 10%

Interest Rate on Long Positions

BM + Annual Rate 1.5% (Details)

Interest Rate on Short Positions

BM - Annual Rate 1.5% (Details)
For short open positions, your account will generally be paid interest, except in cases where the contract interest rate is negative. When the rate is negative, your account will be charged interest.

Trading Comissions

Monthly Value in JPY Per Trade Fee / Minimum Per Order
0 ~ 9,000,000,000 Trade Value × 0.033% / 110 JPY
9,000,000,001 ~20,000,000,000 Trade Value × 0.022% / 44 JPY
20,000,000,001 ~ Trade Value × 0.0165% / 33 JPY

Market Data Monthly Fee Individual Account

Tokyo Stock Exchange, CBOE Japan and Japannext: Free

Institutional Account

Tokyo Stock Exchange: 3,300 JPY
CBOE Japan: 110 JPY
Japannext: 363 JPY

Initial Minimum Deposit Amount

1,000,000 JPY
We ask for 1,000,000 yen when you open an account, regardless of whether you are trading CFD's or not.

Cost

There are four types of cost associated with trading Japan Stock CFDs with IBKR. The costs are the same as if you were trading stocks, as you are trading cash stocks on margin with leverage.


1. Trading Commissions

The volume discount shown in the table below starts at 0.033% of the contract value and goes up to 0.0165% of contract value. The contract value is equal to the value of the underlying shares of the CFD, where each CFD unit is one share of the underlying stock. The contract value is calculated as the number of CFD units x the share price. The number of CFD units is defined as the number shares in the below explanation. For commission details, please click here.

The volume discount is progressive. The first trade of the month will always be 0.033%, and once the value of the executions exceeds 9 billion yen during the month, 0.022% will be applied to the excess. The minimum amount per order will also be reduced from 110 yen to 44 yen.

Monthly Trade Value in JPY Per Trade Fee / Minimum Per Order
0 ~ 9,000,000,000 Trade Value × 0.033% / 110 JPY
9,000,000,001 ~20,000,000,000 Trade Value × 0.022% / 44 JPY
20,000,000,001 ~ Trade Value × 0.0165% / 33 JPY


2. Clearing Fees (equivalent)

In our Japan Stock CFD model, at the moment of execution of a CFD order, a hedging transaction is made by buying or selling the underlying stock. This clearing cost is included in the hedging costs required by IBKR.

Clearing Cost=Trade Value × 0.00044%+3.245JPY × The number of executions


3. Interest Equivalent

You will be charged a daily interest equivalent according to the table below for positions carried over to the next day. For more information, please click here.

Long positions※2

BM※3 + Annual rate 1.5%

Short positions※2

BM※3 - Annual rate 1.5%
For short open positions, your account will generally be paid interest, except in cases where the contract interest rate is negative. When the rate is negative, your account will be charged interest.

  1. The number of days is based on the number of days carried over from one day to the next.
  2. The position is the notional value of the underlying shares of the CFD and is calculated on a daily basis with the closing price.
  3. BM is the benchmark rate used by IBKR.

4. Stock Borrow Fee (Short Sale Only)

If you hold short positions, you will also be charged Stock Borrow Fee. When we receive Japan Stock CFD orders, we are hedging the same volume as your order on the exchange, and if you short sell we will be required to procure the same volume of shares. Therefore, you will be required to pay Stock Borrow Fees to the lender. This is due to the fact that our Japan Stock CFD is based on the DMA model, which means that we actually hedge our short positions in the market.

Please note that the Stock Borrow Fee is not a flat rate and varies from stock to stock.


Japan Stock CFD and IB SmartRoutingSM

When trading Japan Stock CFD, IBKR executes your CFD order at the same time that it executes a hedge trade in the stock market. This means that the share price of the hedged trade executed by IB SmartRouting will be equal to the value of your CFD order. In practice, the best quote between the Tokyo Stock Exchange, CBOE Japan and Japannext is used as the CFD execution rate, and this rate is the same as the SMART rate for cash equity transactions.


Available Contracts

We offer approximately 1,100 stocks, including the 225 constituent stocks. The number of stocks offered is expected to grow in the future.


Dividend Equivalent

If you trade Japan Stock CFD with us and hold a long position on the record date, the "dividend equivalent" you receive will be 100% - 10%(withholding tax) = 90%.

If a domestic resident purchases listed stocks in Japan and receives a "dividend" payment, the withholding tax rate will be 15.315%, plus an additional 5% inhabitant tax, for a total tax rate of 20.315%.

On the other hand, in the case of our Japan Stock CFD, the actual dividend payment is made to our liquidation provider based abroad who hedges in the Japanese market, and under the tax treaty between Japan and the country in which liquidation provider is based, the tax rate on such dividends is 10%.

Therefore, the "dividend equivalent" for clients trading Japan Stock CFD with us and holding long positions on the record date will be 100% - 10% = 90%. (In contrast, a Japanese resident trading equities on margin and receiving a dividend equivalent would normally receive 100% - 15.315% = 84.685%).


Clients’ Assets Protection

In accordance with the provisions of the Financial Instruments and Exchange Act, the funds entrusted to us by our clients in relation to Japan Stock CFD transactions are segregated from our company's assets and managed in a segregated trust account opened with Sumitomo Mitsui Banking Corporation.


FAQs


Currently, CFD trading (Japanese Equity CFD trading) is available for approximately 1100 stocks, excluding ETFs and REITs as underlying assets. The number of individual stocks will be expanded in the future. For more details, please refer to the list of contracts available for CFD in the page "Products".

The prices of Japan Stock CFD are determined by the market price of the underlying stocks in the market that we selected as the best execution market. We do not make any spread adjustments or hold any positions against you in determining the price.

We use the DMA model for Japan Stock CFD trading, which means that non-immediate, non-marketable orders (limit orders) will remain on the exchange book where they are traded. Clients are able to trade at the same price as the buy or sell quote for the underlying Japanese stock.

We calculate risk-based margins based on the historical volatility of each underlying asset. The margin requirement for retail accounts is at least 20% and for corporate accounts it is at least 10%. Most of our CFDs on Japanese stocks are subject to these margin rates, which allow for more leveraged trading compared to physical trading of the underlying asset. Even if a client has multiple positions in CFDs on Japanese stocks (or underlying stocks) that can offset market risk, the margin will be applied to each CFD on Japanese stocks and will not be reduced. If you have more than a certain amount of positions, you may be required to pay additional margin. For more details, please refer to the page "Margin Requirement".

A compulsory repurchase occurs when, for whatever reason, you are unable to continue to borrow shares after a short sell Japan Stock CFD order has been executed. Therefore, if you have held such a CFD position, it will be subject to compulsory repurchase.

We process corporate actions for clients who hold CFD positions to ensure that they receive the same economic benefits as holders of the underlying shares. Dividends will be reflected in the client's account through the receipt of a dividend equivalent, while other events will be reflected through the receipt of an adjustment or position adjustment. For example, if a corporate action results in a change in the number of shares (e.g. a stock split or reverse stock split), the volume of Japan Stock CFDs held by the client will be adjusted accordingly. In the event of a new share issue, we will provide you with a CFD on the new shares, which will create a buy/sell position in line with the volume of the underlying shares.

Please note that in the event of a complex corporate action, such as a takeover, it may not be possible to adjust the CFD trading volume appropriately. In such cases, we will suspend CFD trading prior to the record date.

You can trade Japan Stock CFD if you have an IB-JP account with Interactive Brokers Securities Japan, Inc. Please note that you will need CFD trading permission prior to trading.

You will need to apply for CFD trade permission via the Client Portal to trade Japan Stock CFDs. Once the trade permission has been approved in your account, you will be able to trade. Please note that you will be required to agree to a risk disclosure document in connection with your application. Please read it carefully before applying.

Market data on the underlying Japanese equities is usually required for trading Japan Stock CFDs. If you wish, you can subscribe to the relevant exchange's market data on request (for a fee). If you have already subscribed to such market data, you do not need to subscribe to new market data.

You can find the execution history of your CFD trades in the "CFD" section of the "Trades" section of your Activity Statement and your open CFD positions in the "Open Positions" section.

Yes, you can.

Japan Stock CFDs are traded by us as your counterparty and are not cleared through an exchange or a clearing house. As such, you bear the financial and business risks, including our credit risk.

All client assets, whether individual or corporate, are segregated from our assets in a trust account with Sumitomo Mitsui Banking Corporation.

For more information on the risks associated with Japan Stock CFD trading, please refer to the risk disclosure document on Over-the-Counter Derivatives Trading such as Japan Stock CFD.

You can trade CFDs on both accounts (subject to prior approval for the relevant trade permission).

There is no limit to the amount of positions that can be held in Japan Stock CFD. However, please note that if you hold more than a certain amount of positions, you may be subject to additional margin requirements. Please refer to Margin for more details.

We do not accept telephone orders, except in exceptional circumstances where we are placing a closing order for an open position.

Disclosures

Commissions and Fees
Trading commissions and other fees are payable in accordance with the rates, amounts and methods described in the "Commission Guidelines" for trading Japan Stock CFDs.

Margin
In order to conduct Japan Stock CFD trading, the client is required to deposit margin (cash only) as collateral as stated in our risk disclosure document.

Risk of loss of principal due to price fluctuations
Our Japan Stock CFD transactions are conducted using the prices of individual stocks as the underlying assets. These prices may fluctuate, which may result in a profit or a loss.

Risk of loss in excess of principal due to price fluctuations
Japan Stock CFD transactions are high-risk transactions, and the amount of loss may exceed the amount of margin. Japan Stock CFDs have a leverage effect and are high-risk transactions where losses are largely dependent on fluctuations in the price of the underlying asset. The amount of loss may exceed the amount of margin because the amount of transaction is larger than the amount of margin required to be deposited by the customer for the transaction.

Risk associated with liquidations
To prevent clients from incurring losses in excess of the amount of margin deposited when trading Japan Stock CFDs, we have established a rule to liquidate open positions in certain cases (loss-cut rule), but there is a risk that losses in excess of the amount of margin may occur due to sudden changes in market conditions.

Clients should monitor the status of their trading account at all times to ensure that they maintain sufficient funds to meet the margin requirements set by IB. IB will not notify Clients in advance of any margin shortage in the case of compulsory liquidations of open positions in the Client’s trading account or in the case of taking any other action stipulated in the General Terms and Conditions. In other words, in the event such as the margin ratio falling below a predetermined level, we will execute a mandatory liquidation to restore the margin amount without any intraday grace period, such as issuing a margin call to the Client.