Dividends And CFD Trading

There is often confusion about who owns the shares when trading in the derivative of CFDs; the owner of the shares will be the stock broker or brokerage firm.
When you trade Contracts for Difference you are actually doing something which is called a swap trade; this means that you are swapping the actual physical stock for a contract.
When you make these positions, you are responsible for one hundred percent of the loss and one hundred percent of the gains but do not own the stock, nor do you have rights to the company.
At times the CFD trader will be able to collect dividends if they take a 'Rights Issue'.
When the trader has opened a long CFD position they have the potential to generate income dividends.
They will typically be 90% of the pip and will happen if the position is still held when the stock goes 'ex-dividend' (XD), and will often take a few weeks to several weeks to be distributed.
Let us say that the investor held the position on August 1 and the share went ex-dividend on that date; and if the share paid 30p per share the dividend would 27p.
If the trader was holding a short position when the stock goes 'ex-dividend' they will have to pay the amount out of their account.
If the dividend is.
20 pounds and the actual stock price was 8 pounds per share the actual price will drop to 7.
80 pounds.
The point to note about this is that the trader is actually not sustaining a loss as they are paying out 20p for the dividend but are generating a profit of 20p for the price drop, thus canceling each other out.
To clarify a bit, not all CFD trading positions will generate dividends.
For instance if the ex-dividend date is on August 1 but you closed your position on August 3 you would be entitled to receive dividends, however, if you opened your position on August 3 you would not be entitled to any dividends.
Your CFDs broker will either credit your cash account or withdraw cash from your account depending on the long or short positions.
It is also important to realize that the dividends which are earned or lost in this derivative are not what is significant; when the shares earn dividends it is more about the investment, whereas when you are opening positions with Contracts for Difference you are speculating.