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.
Let’s look at some examples:
You are long two standard contracts on the South Africa 40 cash at 4:50pm when there is a dividend adjustment that takes 7.8 points off the index. Our South Africa 40 cash price drops by 7.8 points, so your running profit and loss (P&L) is reduced by 7.8 x 2x R50 = R780. We therefore credit your ledger with R780, to negate this drop in P&L.
Now let’s say you’re short two standard lots of South Africa 40 cash at 4:50pm when there is a dividend adjustment of 2.9 points. Our South Africa 40 Cash price drops by 2.9 points, so your running P&L is increased by 2.9 x 2 x R50 = R290. We therefore debit your ledger with R290, to negate this rise in P&L.
IG publishes forecast dividend adjustments for major global indices. You can find these in the IG Community and in the news and analysis feed on My IG.
IG publishes forecast dividend adjustments for major global indices. You can find these in the IG Community.
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