CFD Trading Fundamentals: Info To Know About Dividends.
The first thing to be started with is that trading in the derivative of CFDs is regularly connected with a confusion concerning who exactly owns the shares. In fact, there is nothing too difficult about this – the shares are owned by the stock broker or brokerage firm. To be more precise there is a need to specify that when a person is dealing with CFD trading, this means that he/she is actually dealing with a swap trade. In simple words a person is swapping the actual physical stock for a contract. So, when such positions are made, a person is responsible for 100% of the loss and 100% of the gains but does not possess the stock, nor has rights to the company.
Opening a long CFD position means for a trader that he/ she has the opportunity to receive income dividends. To go into more details it should be pointed out that typically they are 90% of the pip. This happens in the case the position is still held when the stock goes ‘ex-dividend’. Mostly, this takes a few weeks or even several weeks to be distributed.
As regarding opening a short position there is a need to clarify that when the stock goes ‘ex-dividend’ a trader will have to pay the sum out of his/ her account. One more important feature to call attention to here is that the trader is actually not sustaining a loss, as he/ she is paying out 20p for the dividend. So, there will be a profit of 20p for the cost drop generated.
You should also consider that not all CFD trading positions generate dividends. Let me provide an example to make it easier to comprehend. In the case the ex-dividend date is on August 1 but the position was closed on August 3, a trader would be free to receive dividends. But if a trader opened position on August 3, he/ she would not be entitled to any dividends.
There is also one more essential thing for you to be aware of CFDs broker – they will either credit a trader’s cash account or extract cash from his/her account. This is dependent on the type of position that was made: long or short.
Besides, you need to understand that the dividends which are earned or lost in this derivative are not the key point. In fact, when the shares earn dividends it is more about the investment. Don’t forget that when somebody opens positions with CFDs, he/ she starts speculating.