What am I affected by dividend adjustments?
As CFD accounts are derivative accounts used to trade on price movements and don’t receive cash dividends in the traditional way share dealing accounts do.
Instead, ‘dividend adjustments’ are used to mitigate for the price movements of dividend payments. This ensures no profit nor loss is made from these price movements, as they’re scheduled public events. It’s important to remember that leveraged index traders can neither profit nor lose from these price movements, as they’re scheduled public events. Were a trader able to profit from these movements, they’d simply place a large short position just before the adjustment and close out just after, locking in the drop in the value.
If you have an open position through a dividend adjustment, we’ll ensure that there is no material impact on you by either crediting or debiting your ledger with the exact amount you have incurred as additional running loss/profit due to the dividend adjustment.
Examples:
You are long 1 standard contract of the Singapore Blue Chip Cash (SD1) at 9:00AM when there is a dividend adjustment that takes 7.8 points off the index. Our Singapore Blue Chip Cash price drops by 7.8 points, so your running profit and loss (P&L) is reduced by 7.8 x S$10 = S$7.8. We therefore credit your ledger with S$7.8, to negate this drop in P&L.
Now let’s say you’re short two standard lots of Wall Street Cash (SD1) at 9pm when there is a dividend adjustment of 2.9 points. Our Wall Street Cash price drops by 2.9 points, so your running P&L is increased by 2.9 x 2 x $1 = $5.8. We therefore debit your ledger with $5.8, to negate this rise in P&L