Corporate Actions

Posted By Robert On Friday, April 24th, 2015 With 0 Comments

Another major advantage of CFDs is the ability to participate in corporate actions. It can vary from traditional share trading in many ways;

  • Most providers will pay a cash equivalent of the dividend on ex date rather than a wait up to three months for traditional share traders.
  • You will not receive franking credits but may be liable to pay them when you are short.
  • When you are short a CFD it must be remembered you will pay the cash equivalent on ex date.
  • Most providers will let you participate in share splits and rights issues as long as the position has been held over the required period. As an example for a dividend you have to hold the position going into the ex date to be eligible to recei9ve payment.
  • Some corporate actions are unavailable such as limited share purchase plans.

A good example of this is referred to as dividend surfing or stripping. The benefit of CFD trading is you only have to outlay a small margin to access a much larger position. Corporate actions are paid on the full position you have as a CFD trader. Using the example below the CFD trader for the same position as a share trader only outlays  $175 instead of the full $3,500 and therefore the Return On Investment (ROI) is 200% instead of 10%.

Dividends and CFDs

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