Why Are Dividend Adjustments Applied When Trading Stocks?
When trading stocks through Contracts for Difference (CFDs), dividend adjustments may be applied if the underlying company distributes dividends. These adjustments are not tied to owning the stock but rather reflect how dividends impact open positions, whether long or short.
What Are Dividend Adjustments?
When a company pays dividends, the value of its shares decreases on the ex-dividend date to reflect the payout to shareholders. In CFDs, even though you don't own the underlying shares, dividend adjustments are applied to balance this change in value for open positions:
Long positions (BUY): You will receive a credit equal to the declared dividend multiplied by the size of your position.
Short positions (SELL): You will incur a charge equal to the declared dividend multiplied by the size of your position.
How Does This Affect Trading?
If you trade short on dividend-paying stocks, you may experience an additional charge due to the dividend adjustment. This charge can impact your balance and metrics such as the "Daily Loss Limit" or "Profit Target." It's essential to account for these adjustments when planning your trading strategy.
How to Avoid Dividend Adjustments
Check the fiscal calendar: Before trading an asset, verify if the company has scheduled a dividend payout on nearby dates.
Avoid dividend-paying companies: If your strategy relies on short positions, prioritize stocks of companies that do not distribute dividends.
Consider long positions (BUY): Instead of trading short, a long position may benefit from a credit rather than incurring a charge.
How to Check This Information Before Trading
Review the asset specifications on the trading platform.
Consult the fiscal calendar for upcoming dividend payouts.
Conclusion
Understanding how dividend adjustments can impact your trades is essential for maintaining a profitable strategy and avoiding surprises. Always verify if an asset is subject to dividend adjustments before trading to make informed decisions. If you have any questions, feel free to contact our customer support team.