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What a Dividend Does to a Stock CFD

On the ex-dividend day a share opens lower by about the dividend, and a broker evens that out on a stock CFD: a buy is paid the amount as a balance line, a sell pays it. This paper shows why the price drops, what the adjustment is, how the two sides of the contract come out, and where the line appears in a platform's History tab. After reading it you can recognise a dividend adjustment in your account and explain why the trade's price moved without the trade changing.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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A dividend on a CFD, in five lines

A dividend is cash a company pays its shareholders. On the ex-dividend day, the first day a new buyer no longer gets it, the share opens lower by about that amount, because the cash has left the company. A CFD holder is not a shareholder, so the broker evens things out. A buy CFD loses on price and is paid the same amount as an adjustment; a sell CFD gains on price and pays it. In this paper's example the share goes from 150.00 to 149.00 with a 1.00 dividend, and the net is nothing, apart from tax that some brokers hold back on the adjustment.

Cash leaving the company

Picture cash leaving the company. A dividend moves money from the company's till to its shareholders, 1.00 a share here. A share is a piece of the company, so with 1.00 a share gone from the till, each piece is worth 1.00 less, and the price opens lower by about that amount. Nothing has been lost by the shareholder, who has the cash in hand instead. The drop is the move being marked on the price.

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