subject: Dividends And CFDs [print this page] Dividends And CFDs Dividends And CFDs
There is often confusion about the master of the shares when trading within the derivative of CFDs; the owner of the shares would be the stock broker or brokerage company. When you trade Contracts for Difference you are actually doing something which is called a swap trade; which means that you are swapping the particular physical stock for a contract. When you make these positions, you're responsible for one hundred percent of the loss and one hundred percent from the gains but do not own the stock, nor do you have rights to the company. Sometimes the CFD trader will be able to collect dividends when they take a 'Rights Issue'.
When the trader has opened a long CFD position they've the potential to generate income dividends. These will typically be 90% from the pip and will happen if the position continues to be held when the stock goes 'ex-dividend' (XD), and will often take a few weeks to many weeks to be distributed. Let's say that the investor held the position on August 1 and the share went ex-dividend on that date; and if the share paid 30p per share the dividend would be 27p.
Should the trader was holding a short position once the stock goes 'ex-dividend' they will have to pay the total amount out of their account. If the dividend is .20 pounds and the actual stock price was 8 pounds per share the current price is going to drop to 7.80 pounds. The factor to note about this is that the trader is really not sustaining a loss as is also paying out 20p for the dividend but they are generating a profit of 20p for the price drop, thus canceling each other out.
To clarify a little, not all CFD trading positions will yield dividends. For instance if the ex-dividend date is on August 1 however,you closed your position on August 3, you'd be entitled to receive dividends, however, in the event you opened your position on August 3 you would not be entitled to any dividends.
Your CFDs broker will either credit your money account or withdraw cash from your account depending on the short or long positions. It is also important to understand that the dividends that are earned or lost using this derivative are not what is significant; when the shares earn dividends it's more about an investment, whereas when you're opening positions with Contracts for Difference you're speculating.
