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 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.
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.