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Spread betting explained – rolling daily dividends

Whether you trade in the real cash markets or in spread betting contracts, there are two key dates that you must always have in mind when buying or selling shares, and these are the “date of record” and the “ex dividend” date. When a company declares a dividend it sets a date of record, and in order to receive the dividend you must be registered as a shareholder with the company at this date. Once the date of record has been set by the company, then the stock exchange set an “ex-dividend” date for the share, with the date of record generally set two working days after the ex-dividend date. Now, if you buy a stock or share one day before the ex-dividend date, then you will still receive the dividend, but purchase it on the date or after, and you will lose out. Finally all ex-dividend means is that at this point the share will trade without its dividend, so the price will fall to reflect the amount of the dividend. Now, why is all this important to us in financial spread betting, and in particular with a rolling daily contract. Well the answer is simple and for the purposes of this example I have used 80% and 100%, although you might find your company works on 90% and 90% or some other combination, so as I said earlier, please check.

If you are holding a long ( buy) contract, then you will be credited with 80% of the dividend, but if you are short, then you will be charged 100% of the dividend. So let me give you an example with a share. Assume we are holding a long position at £10 per point, and the share goes ex-dividend and pays 10p per share. We would receive 80% x £10 x 10p, or £80 in our account – very nice! These figures are based on UK shares, and you will need to check your own spread betting company for the percentages for European and US shares which will probably vary slightly. Now let’s look at the reverse and assume we are holding a short position, then in this case we have to pay the dividend instead, which in this case would be 100% x £10 x 10p, or £100 – so our account would be debited with (£100) – a nasty surprise is you’re not expecting it! So where do you find this information, and preferably before you open your trade? – well several places but here are two suggestions. First, check the press, which normally provides details in the financial section of companies making financial announcements and dividend dates etc. The second place is to check the company’s web site and look for the section on shareholder information, but wherever you look – please check before opening your contract! Now let’s look at an index contract which is more complicated still!

If you trade a rolling daily index contract then you will almost certainly be subject to the effects of dividends. As I’m sure you know, any index is composed of constituent stocks or shares – the FTSE100 is the top 100 UK companies. Naturally during any week there will almost certainly be one of these companies going ex dividend. Shares on the FTSE go ex dividend at the start of trading  every Wednesday morning, which will directly affect the FTSE 100, which naturally tends to fall as a result.  If the stock that goes ex-div has a large enough weighting in an index it can have a material impact on the price of that index. Therefore, if you trade for example the UK 100 rolling daily, there will be cash adjustments made to your account to reflect these dividends. It is impossible to be precise about how much, but as an example with Vodafone, a 5p dividend may represent up to 8 points in the FTSE index due to its weighting. Whether your account receives a credit or debit will depend again on whether you are long or short. For long trades you will receive a credit and for short trades a debit on your account.

Finally, with all rolling daily contracts it is important to realise that each spread betting company may handle them differently. With some, the % added to RFR calculations may be higher than 2%, possible 2.5% or slightly less, the percentages applied to dividends on stocks and shares may vary between 80% and up to 100%, and indeed some companies may even add dividends into the spreads on an ongoing basis, so you need to check very carefully the terms of each and every contract with your particular financial spread betting company, before opening your daily rolling contracts.