Dividend adjustment

A cash entry applied to an open share CFD when the underlying goes ex-dividend and its price typically falls by approximately the dividend per share. The long side is credited and the short side debited an amount corresponding to the dividend, so a price change caused by the dividend rather than by the market does not land on one side. It is not income, and no issuer pays it.

On a single company the calculation is direct: the dividend per share multiplied by the number of shares the contract covers. On an index CFD it is indirect, because an index falls by the weighted contribution of whichever constituents go ex-dividend that day. That produces small adjustments on many days rather than one large adjustment, and it is why an index position accumulates entries that have no obvious event behind them.

The two sides are not always equal in cash, which is the detail most often missed. Withholding tax applies to a dividend in the underlying market, and providers commonly credit the long side an amount net of that tax while debiting the short side the gross amount. The basis used is stated in the provider's own terms rather than being an industry constant, so it is a question to ask of a specific firm rather than a fact to assume.

The purpose throughout is neutrality rather than benefit. Without the adjustment a long position would show a loss on the ex-dividend date for a fall that was scheduled and known, and a short position would show a matching gain. The adjustment removes an artefact of the calendar from a contract that is meant to track a market.