Market Insights

A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it can pay a proportion of the profit as a dividend to shareholders. When a dividend is paid on a stock, the value of the stock will drop. Short positions will be positively impacted by the drop in Price, while long positions are negatively impacted. Dividend adjustments are therefore applied on Share CFD products to negate the impact of the drop in Price. If you are long, you are credited a dividend adjustment. If you are short, you will be debited a dividend adjustment.

When a stock goes ex-dividend, ignoring other market forces, the value of that stock effectively falls by the dividend amount. In most cases, this will, in turn, cause the index value to drop since the value of the index is calculated from the value of the stocks within it. The amount that the index drops is dependent on the weighting of the stock within the index. If more than one constituent stock of an index goes ex-dividend on the same day, we will add the amount of points each stock will cause the index to drop by together to calculate the total dividend amount in relation to the relevant index CFD offered by us.

Dividends are applied on the Ex-Dividend date. For example, if the Ex-Dividend Date was August 3rd. All positions held at the end of August 2nd would be subject to a dividend adjustment. To avoid paying dividends, you can close your position before August 2nd End of the Day at 21:00 GMT and the adjustment would not apply.

If you have a buy position, for example, on a company that announces a dividend, your account will be credited/debited prior to the market opening on the day the stock goes ‘ex-dividend.’ Here’s a typical example:

Examples of Index dividend adjustments

1. If you buy and hold 1 lot NDX cash index overnight with the dividend points of 20, the account will be credited with 20 USD.
2. Conversely, if you sell and hold 1 lot NDX cash index overnight with the dividend points of 20, the account will be debited with 20 USD.

Please note that the amount you are credited or debited will be subject to the relevant tax holding rates according to the region in which the share is listed.

As you would have benefitted from the artificial price movement at the time where in fact, you shouldn’t have, the equivalent amount is debited from your account in order to offset this. Overall, you do not lose or gain anything due to this price adjustment.

These differences are due to the Tax settings of the different underlying countries. For example, for US shares, a tax applies on dividend adjustments to traders of equity derivatives of US stocks. Under this US tax regulation, 30% of all credited Dividend adjustments are withheld before crediting to the client. However, these don’t affect the Dividend adjustment on indices.

The daily dividend amount can be viewed from the history window on the MT5 platform. On the comments, it will be marked as ‘Div,’ indicating that the entry is of a dividend adjustment.