When you trade CFDs on stocks or indices, you do not own the underlying shares. Because of this, dividends are handled as cash adjustments in your trading account.
Instead of receiving a real dividend, your account balance is adjusted when a dividend is paid on the underlying asset.
What happens when a dividend is paid?
There are two possible outcomes, depending on your position:
If you have a Buy (long) position
If you hold a Buy (long) position overnight on the ex-dividend date:
Your account is credited with the dividend amount
A withholding tax may be deducted, depending on the market
If you have a Sell (short) position
If you hold a Sell (short) position overnight on the ex-dividend date:
The dividend amount is deducted from your account
What is the ex-dividend date?
The ex-dividend date is the date from which the stock or index trades without the value of the upcoming dividend.
To be affected by a dividend adjustment, you must:
Have an open position before the ex-dividend date
Hold the position overnight into the ex-dividend date
Why are dividend adjustments applied?
When a company pays a dividend, the price of the underlying asset usually falls by the dividend amount.
Dividend adjustments ensure that CFD traders are treated fairly, even though they do not own the actual shares.
Simple example
A stock pays a $1 dividend
You hold 1 CFD overnight on the ex-dividend date
Buy position:
You receive +$1 (minus any applicable tax)
Sell position:
You are charged –$1