Dividend adjustments

Have more questions? Submit a request

Dividend adjustments: what to know as a trader

A dividend adjustment is a key concept for you to understand as a trader, particularly if you choose to trade individual shares, or indices such as the UK 100 or Australia 200. 

Many companies distribute dividends to their shareholders as a way to reward investment. When a company pays dividends, the value of its shares is likely to decrease, often proportionate to the value of the cash paid as a dividend. A fall in the value of an individual stock due to a dividend payment can also impact the value of the wider index in which the company is included. Consequently, these fluctuations in price can impact the positions you hold on such instruments. 

As a leveraged trader, you won't experience gains or losses as a result of these price shifts, since they are scheduled events that have a predictable impact on an asset's value. To ensure that you aren't unfairly affected by these fluctuations, we’ll implement dividend adjustments. These adjustments offset the impact of dividend distributions on the stock/index's value, maintaining a fair trading environment.

 

How dividend distributions can affect spread bet and CFD positions

When a dividend distribution occurs that affects the price of an instrument, there will be a temporary change in the value of your trading position(s) on the affected market, which is reflected in your running P&L. 

However, we’ll ensure such positions aren’t materially impacted by this change, by either crediting or debiting your account with an amount proportionate to your position size, and reflective of the drop in the instrument's price.

Here are some examples to illustrate how a dividend adjustment comes into play in both CFD and spread betting scenarios.

 

Example: Long CFD trade on the Australia 200

You open one long CFD contract on the Australia 200 worth $1 per index point movement.

One of the companies listed on the Australia 200 distributes dividends, resulting in the index falling by 3 points and a corresponding $3 decrease in your P&L.

Following this event, a dividend adjustment is made to your cash balance as an increase of $3.

 

Example: Short CFD trade on the Australia 200

You open one short CFD contract on the Australia 200 worth $1 per index point movement.

Following a company's dividend distribution, the Australia 200 then falls by 3 points, causing a $3 increase in your P&L. 

A dividend adjustment is subsequently made to your cash balance as a decrease of $3. 



Example: Long spread bet on the UK 100

You open one long spread bet on the UK 100 at £10 a point.

One of the companies listed on the UK 100 distributes dividends, resulting in the index falling by 3 points and a corresponding decrease in your P&L.

Following this event, a dividend adjustment is made to your cash balance as an increase of £30 (£10 X 3).

 

Example: Short spread bet on the UK 100

You open one short spread bet on the UK 100 at £10 a point.

Following a company's dividend distribution, the UK 100 then falls by 3 points, causing an increase in your P&L. 

A dividend adjustment is subsequently made to your cash balance as a decrease of £30 (£10 X 3). 

Understanding dividend adjustments is essential for spread betting/CFD traders, especially when dealing with indices. They help ensure that the impact of individual companies' dividend payouts on the index's overall value is fairly managed among traders. By understanding how dividend adjustments work, you can make more informed decisions about your trading positions.

Articles in this section

Was this article helpful?
0 out of 0 found this helpful