Dividends

If you hold a position in a company that has decided to distribute a part of its corporate profits to its shareholders, this will be reflected in your position accordingly. Depending on the direction of your position, you will either be eligible to receive the payment or you will need to pay. The dividend adjustment is applied to your account if you still hold your position after the close the day before the ex-dividend day (also called ex-div). The ex-div day is the first day when the share trades without the dividend.

In the case of a long position the amount of the dividend that is credited to your account, corresponds to the net dividend (as it has to be adjusted for the taxes paid on dividend income) a holder of equivalent position in the underlying would receive. The sum is equal to number of shares multiplied by the net dividend per share.

Holding a short position would mean the opposite, i.e. the holder needs to pay out the dividend. This transaction accounts for the fact that you actually sold the share. You could also look at this that in broad terms, you are the counterparty of the long.

Please bear in mind the fact that the company’s share price often falls immediately after the profit distribution takes place.

Example - long position

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