What is a dividend adjustment and when should it be taken into account?

You can make money on company shares not only in the classic way, but also using contracts for difference CFDs.

adjustment for dividend amount

At the same time, CFDs make it possible to open transactions for both purchase and sale, allowing you to make money not only when the price rises, but also when it falls.

Dividends are accrued on purchase transactions, just as with physical ownership of shares, but on sale transactions an adjustment is made to the amount of accrued dividends.

That is, when you open a transaction on shares of a company that has paid dividends, this amount is debited from your deposit in the trading platform and sent to those traders who have opened purchase transactions on similar shares.

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With purchase transactions, everything is clear: I bought shares, the company accrued dividends and the profit was added to the trader’s deposit, but problems may arise when selling shares.

correction of transactions by the amount of dividends

If you are shorting a stock using high leverage, then a dividend write-off could have a significant impact on your deposit amount.

For example, you opened a sell transaction on company shares with a volume of $25,000, while your own deposit is $1,000 and your leverage is 1:25. Afterwards, dividends were written off in the amount of 2%, as a result, 25,000*2/100% = $500 will be written off from your deposit. That is, you lose half of your initial deposit, which may lead to the forced closure of the trade due to a stop out being triggered.

After such calculations, the desire to open short trades in shares completely disappears, in order to avoid losing the deposit.

What can you do to reduce the risk of dividend adjustments?

For sell transactions, choose shares of companies that do not pay dividends, examples of such companies can be - Amazon, Alphabet, Meta Platforms, Tesla, Berkshire Hathaway, Netflix, Adobe, Salesforce, NVIDIA, Square (Block)

Before opening transactions, check the dividend accrual calendar, which indicates for which securities dividends will be paid this week - dividend adjustment calendar .

Do not use large leverage for sales transactions; usually brokers themselves limit the leverage on shares to 1:10, but it is better to open short positions with a leverage of no more than 1:5.

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