Dividends on indices and stocks
- 31 Mar 2023
- 2 Minutes to read
Dividends on indices and stocks
- Updated on 31 Mar 2023
- 2 Minutes to read
Article summary
Did you find this summary helpful?
Thank you for your feedback
What are dividends on indices?
Let's start with the basics.
Stock indices reflect the evolution in value of the underlying shares that constitute the index. In general, an index made up of a selection of companies that are listed on the same stock exchange, or that have something in common like sector indices.
Dividends on the other hand are the part of the corporate profits that a company distributes among its shareholders.
When shares that are part of a CFD index reach their ex-dividend date, the index price is adjusted to reflect its payment
Along with capital gains obtained by the appreciation in value of the index, dividends are usually the primary source of return for passive investors.
How do dividends on indices work at Darwinex Zero?
When a company that is part of an index pays dividends to its shareholders, liquidity providers of that CFD index will pay or charge to Darwinex Zero the proportional portion corresponding to the volume opened by its clients in that CFD.
The following day, Darwinex Zero will make the corresponding cash adjustment in its traders' accounts, paying the amount to those who are long and charging the amount of the dividend to those who are short.
This process is fully automatic, and you can consult all the dividend payments on your MetaTrader platform at any time.
Dividends will have no financial impact on your user account, since the trades are made with demo funds, but they will affect the profitability of your strategy and, consequently, of your DARWIN.
German DAX (GDAXI in Darwinex Zero) peculiarity
Unlike most stock indexes, the DAX reinvests the dividends in the index itself. Consequently traders operating the DAX will not pay or receive any dividend.
However, for tax purposes related to German regulations, when a company pays dividends in Germany, 7% of that amount is withheld.
To resolve this fiscal effect, these two cases can occur:
A trader shorting the DAX. If you are shorting the DAX when there is a dividend payment from one of its companies, you will receive 7% of such dividend.
A trader going long in the DAX. If you are long in the DAX, and a dividend is paid out, you will have to pay 7% of that dividend.
As a general rule, DAX companies usually pay dividends in May.
Want to know more about index dividends?
Although the final result in your trading account won't be too affected by dividends, as a trader, you are 100% responsible for gathering such information.
The Internet is an inexhaustible source of information regarding dividend payments.
By way of guidance only, we show you some websites that you can consult:
Was this article helpful?
