How to Receive Dividends on CFD Positions

So, you’ve started trading CFDs, and now you’re wondering, “Can I receive dividends on my CFD positions?” The short answer is yes— with some brokers, you can receive dividend payouts on CFD positions. But there’s more to it than just receiving a payout. 

In this article, we’ll break down how receiving dividends on CFD positions works, answer common questions traders often have, and show you how trading with Switch Markets can streamline the process for you.

What Are Dividends in CFD Trading?

When you trade CFDs on cash indices or individual stocks, you’re speculating on the price movements of the underlying asset rather than owning the asset itself. However, nowadays, many brokerage firms like Switch Markets enable you to receive dividends on CFD positions, although traders do not physically own the company shares. Just like shareholders of actual stocks, CFD traders may receive or pay dividends depending on their position when a company issues a dividend.

This brings us to an important distinction:

• Long Positions (Buy): If you’re holding a long CFD position on a stock or cash index CFD, you’re entitled to a portion of the dividend issued by the company. This positive adjustment is a credit to your client's account.
• Short Positions (Sell): Conversely, if you’re short on a stock or cash index CFD, you’re required to pay the equivalent of the dividend amount.

Take note that here, at Switch Markets, we allow our clients to receive dividend payouts when trading cash indices and stocks. 

How Are Dividends Calculated?

The dividend amount you’ll receive or pay depends on several factors, including your lot size and the dividend per share or index unit. Let’s break it down with the formula:

For Long Positions

It's essential to note that dividend adjustments for long positions serve as a benefit to traders, providing a positive adjustment to their accounts. Here's how it's calculated:

Lot Size x Dividend x % Client Receives

At Switch Markets, the percentage you’re entitled to receive on long positions varies across instruments and is clearly outlined in the daily dividend table sent to clients. For example:

• If the dividend on the US500 is 0.057.
• If you held a 1-lot long position, your actual dividend payment would be:
  1 x 0.057 x 85% = USD 0.048

For Short Positions

For short positions, dividend adjustments act as a deduction, ensuring the market dynamics remain fair. Here's the formula to calculate the amount paid:

Lot Size x Dividend

When shorting, you’ll pay 100% of the dividend amount. Using the same example as above:

• A 1-lot short position on the US500 would result in:
  1 x 0.057 = USD 0.057 paid

This straightforward calculation ensures transparency and helps traders plan their open positions around dividend issuance dates.

Nowadays, many brokerage firms enable you to receive dividends on CFD positions, although traders do not physically own the company shares.

How Do Dividend Adjustments Work?

Dividend adjustments in CFDs occur on the ex-dividend date—the date when the stock trades without its dividend value. On this day, the stock’s price typically drops by the dividend amount. The adjustment for CFD traders ensures a level playing field:

• For Long Positions: You’ll receive the dividend as a credit in your account.
• For Short Positions: The dividend amount is deducted from your account. Note that this adjustment reflects the withholding tax policies of the respective liquidity providers, ensuring compliance.

Let’s say you’re trading with Switch Markets and have a 2-lot long position on a stock CFD that declares a dividend of $0.10 per share. Assuming the client receives 90% of the dividend:

Dividend Received = 2 x 0.10 x 90% = $0.18

On the other hand, if you’re short on the same stock with a 2-lot position:

Dividend Paid = 2 x 0.10 = $0.20

These adjustments are reflected in your trading account seamlessly, ensuring you can focus on executing your strategies without worrying about manual calculations.

Key Dates to Watch

To benefit from dividend adjustments on CFD positions, you need to pay attention to:

• Ex-Dividend Date: To receive a dividend, ensure you’re holding a long position before the ex-dividend date (which is typically one business day before the record date). Closing your position on or after this date disqualifies you from receiving the dividend payments.
• Payment Date: This is when the dividend is actually credited or debited from your account.

Remember that in order to be able to receive dividends on CFD positions, you must hold your shares and cash indices prior to the ex-dividend date. You should, therefore, do your own research on financial platforms as to when the exact date of the ex-dividend date of the company share you are holding is. 

Benefits of Trading CFDs with Switch Markets

When it comes to CFD trading, transparency and support are crucial. Switch Markets offers several advantages that make managing dividend adjustments straightforward:

• Daily Updates: Our content team makes an effort to keep you informed about upcoming dividend events, their amounts, and the applicable percentage for long positions.
• Clear Calculations: Dividend adjustments are applied seamlessly to your account with no hidden fees or complications.
• Wide Range of Instruments: Trade CFDs on major cash indices and individual stocks with competitive spreads and market-leading execution.
• Dedicated Support: Our team is available to assist with any questions about dividends or other aspects of trading.

Final Thoughts

In sum, dividends can be an extra source of passive income that can be used by long-term investors looking to build an income portfolio or short-term traders looking to get an extra income to increase their account balance. If this is part of your strategy, then Switch Markets offers trading on more than 1000 stocks from major exchanges worldwide. So, keeping track of ex-dividend dates and leveraging the tools provided by Switch Markets can significantly optimize your trading outcomes. 

Just remember that we’re committed to providing traders with the resources and support they need to succeed. So, if you’re ready to take your CFD trading to the next level, open an account with us today and start trading with confidence.

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FAQs

If you’re still curious about the finer details of dividends in CFD trading, we’ve compiled answers to some frequently asked questions to help clear up any uncertainties. Let's quickly check them out:

Do all CFDs pay dividends?

No. At Switch Markets, we only adjust dividends for cash indices and individual stock CFDs. ETFs, for instance, are excluded from dividend adjustments.

What happens to dividends in leveraged positions?

Dividend adjustments apply to the notional value of your position, so your account is credited or debited based on the total exposure rather than just your initial margin.

Can dividend adjustments create opportunities?

Yes. Some traders strategically enter positions before ex-dividend dates to benefit from dividend adjustments. However, this approach requires careful planning and risk management, as the market often adjusts for dividends.