CFDs FAQ
What is a CFD?
A Contract For Difference, or CFD, is a derivative product that allows traders to participate in the price movement of a security or index without taking full ownership of the security/index. CFDs are traded on margin, thereby allowing you to gain greater exposure to price movements on securities using far less capital than would be required if trading on the underlying securities themselves. Although CFDs confer no ownership rights they do reflect the full performance of the underlying stock, including corporate actions.
How are Share Dividends handled?
Holders of long CFD positions will, when dividends are paid on the underlying share, qualify for a proportional payout. Holders of short CFD positions will have to pay an amount equal to the full (gross) dividend paid on the underlying share.
The dividend amount will be credited/debited to the client's trading account on ex-date, except in cases where the dividend rate is unconfirmed, e.g. ADRs and where the underlying stock is converted from its natural currency. Example: A client holding HBOS CFDs (London-quoted) where the dividend is declared in USD and then converted to GBP and HKD prior to the payable date. In this case the dividend would be paid on the payable date.
Dividends on CFD positions are paid and debited by the platform and not by the underlying company. Dividends paid or debited are cash adjustments reflecting corporate actions in the underlying share and as a result will not take into account special dividend taxes that may be applicable. CFD dividends may therefore differ from the dividends payable on the underlying share. Holding a CFD does not confer the rights to any dividend imputation credits.
How are Corporate Actions taken care of?
As a CFD position reflects the exposure of either a purchaser or seller of shares in an underlying company, it will also reflect any capital adjustments or benefits announced by the company. Therefore:
- Owners of CFDs will partake in corporate actions but are not entitled to any voting rights.
- Bonus issues, rights issues and stock splits will be replicated in the CFD on the corresponding ex-date. On ex-dates, client positions will be adjusted to allow for the effect of the corporate action on the market price.
- In respect of allocated rights, the platform does not provide a service to trade rights.
When can I trade CFDs?
CFD Trading hours mirror those of the exchange on which the underlying stock is traded.
What markets are available?
SMART offers CFD trading on 22 different exchanges, including 15 index-tracking CFDs.
What CFD instruments are available?
CFDs, CFD Indices, CFD DMA.
What is CFD DMA?
Direct Market Access (DMA) is CFD trading that goes directly to the exchange, rather that to the market makers. Trading through DMA requires an agreement with the exchange on which the underlying stocks are traded. Please consult to your account manager for further details.
