Constituent stocks of an index will periodically pay dividends to shareholders. When they do, this impacts the overall value of the index causing it to drop by a certain amount.
It’s important to remember that leveraged index traders can neither profit nor lose from these price movements, as they’re scheduled public events. Were a trader able to profit from these movements, they’d simply place a large short position just before the adjustment and close out just after, locking in the drop in the value.
If you have an open position through a dividend adjustment, we’ll ensure that there is no material impact on you by either crediting or debiting your ledger with the exact amount you have incurred as additional running loss/profit due to the dividend adjustment.
IG publishes forecast dividend adjustments for major global indices. You can find these in the IG Community.
Let’s look at some examples:
You are long 1 contract of FTSE 100 cash at 8:30pm (Dubai time) when there is a dividend adjustment that takes 7.8 points off the index. Our FTSE 100 cash price drops by 7.8 points, so your running profit and loss (P&L) is reduced by 7.8 x $10 = $78. We therefore credit your ledger with $78, to negate this drop in P&L.
Now let’s say you’re short two standard lots of Wall Street Cash at 1am (Dubai time) when there is a dividend adjustment of 3.2 points. Our Wall Street Cash price drops by 3.2 points, so your running P&L is increased by 3.2 x 2 x $10 = $64. We therefore debit your ledger with $64, to negate this rise in P&L.