## What is a dividend adjustment?

A dividend adjustment is a change made to a company’s stock price to balance a dividend payment to shareholders.

Once the dividend allocation for shareholders has been confirmed, the stock price of the company decreases by roughly the amount of the dividend. This is known as the ex-dividend date.

In the case of an index, individual stock adjustments will cause the total index value to fall too, depending on the weighting of the adjusted stocks.

The dividend adjustment will cause the stock price to decrease by roughly the dividend payment amount.

To make sure that the decrease in the stock or index price doesn’t have any material impact on open positions, Alpari will adjust the trader’s account to match the new ex-dividend price.

This will either be a credit or a debit, depending on whether the trader has a long (buy) or short (sell) position open.

Here’s a quick example.

Numbers and values are used for illustrative purposes only and aren’t indicative of current market conditions. Dividend adjustments take place on ex-dividend dates for stocks.

#### Long position:

Let’s say that a trader is 20 lots long in NAS100 at a price of \$18,000.00. A dividend adjustment decreases the total value of the index by \$3.55.

Normally, this would result in a net loss for the trader. However, as this decrease in value is not a true loss for the trader, we credit the trader's balance to account for the dividend adjustment and ‘make them whole’.

The credit would be calculated as 20 x \$3.55 = \$71.00. If needed, this amount is converted to the base currency of the account.

Amount credited to account: \$71:00

#### Short position:

Now let’s imagine another trader is 20 lots short in NAS100 at the same price of \$18,000.00 and the dividend adjustment decreases the total value of the index by \$3.55.

Normally, this would result in a net gain for the trader. However, as this decrease in value is not a true profit for the shorting trader, we would debit the trader's balance to account for the dividend adjustment.

The same calculation is used, but the amount is debited from the trader account:

20 x -\$3.55 = -\$71.00. If needed, this amount is converted to the base currency of the account.