What is a Dividend Adjustment and How to Take it Into Account in Trading

How is the dividend adjustment calculated?

The ex-dividend date is the date after which shares in a company cease to be entitled to receive dividends. Shares that are purchased after this date will not be included in the list of shareholders who will receive dividends.

The size of the dividend adjustment is calculated using the following formula:

Dividend adjustment = Size of dividend payments / Number of shares per lot * Size of the position in shares.

For example, if a company announces a dividend payment of $1 per share, and the size of 1 lot of CFD on that index is 100 shares, then the dividend adjustment will be $0.01 per share. If a trader opens a position on that index with a size of 1 lot, then their dividend adjustment will be $1.

The dividend adjustment is usually calculated on the ex-dividend date and paid to traders on the dividend payment date.

Example:

Suppose that Apple announces a dividend payment of $1 per share. The ex-dividend date is March 15, 2023. The size of 1 lot of CFD on the AAPL is 100 shares.

• If a trader opens a position on the AAPL with a size of 1 lot on the ex-dividend date (March 15, 2023), then they will be credited with a dividend adjustment of $1

• If a trader opens a position on the AAPL with a size of 1 lot before the ex-dividend date (before March 15, 2023), then they will not be credited with a dividend adjustment

Another example for calculating the dividend adjustment:

Dividend adjustment = Position volume in lots * Amount of dividends per share * Contract size

Example:

A long position was opened on Apple shares with a volume of 2 lots, lot size – 10 shares (according to the specification), dividend amount – 3 USD per share. Dividend adjustment = 2*3*10 = 60 USD.

Important points:

• The size of the dividend adjustment may be changed in accordance with changes from liquidity providers

• In some cases, the broker may withhold taxes from dividend adjustments

Additional notes:

• The dividend adjustment is usually calculated in the closing market on the ex-dividend date

• The dividend adjustment is usually paid to traders on the dividend payment date

• Some brokers may not provide dividend adjustments to their clients

A dividend adjustment is added to the deposit if a long position is opened in the security. And it is deducted if a short position is opened.

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