I can see a dividend adjustment on my account. What is this? Dividend adjustments explained

An adjustment (which you will see on your trading statement as a Dividend Adjustment), refers to the index dividend associated with the underlying asset that you're trading.

A dividend is an allocation of profits by a company to its shareholders, so when a company earns a profit, it pays a proportion of the profit as a dividend to its shareholders. This has an effect on the market price as money is coming out.

The dividend adjustment is made to your account if you have an open position in an underlying instrument that is a share or an index and that underlying instrument pays a dividend. This occurs when the individual stocks from the index report a dividend, so for Wall Street 30, this would relate to the companies (stocks) under the index that have reported a dividend.

Let’s say you place a BUY trade on a share that pays a dividend. If that share ‘went ex-dividend’, you would experience an unfair loss as there would be a drop in the share price, which isn’t a result of market sentiment but due to a dividend adjustment.

To compensate for the loss, a credit will be applied to your account. This credit is the equivalent of the dividend that has been paid. It may be less if there are any withholding taxes – these are normally 10% of the dividend.

The opposite applies if you open a SELL trade on a share that pays a dividend. Here, you would benefit if the share ‘went ex-dividend’, as the price would drop and you would have an unfair advantage. To correct this, a debit would be made to your account. This would be the equivalent of the dividend that’s been paid.

To clarify, the dividend adjustments have a zero net effect on your account. This does not mean that you are gaining/losing from this market move but to make this fair to all customers, the price needs to be re-adjusted and this is done via the dividend adjustments.