Dividend adjustment on Futures or just DFB contracts?

[Kiwi_Rob]

Apologies if this is a silly question, but does IG make/pay dividend adjustments when you are holding a Futures contract?  I know they do with DFBs and I have searched the site with regards to Futures but am struggling to find anything that specifically references dividend adjustments on Futures contracts

There is a note on my Trade Analytics that says "Your average holder time on indices is 10 days.  It's usually cheaper to hold futures contracts after 3-6 days."  This makes sense as the initial cost (wider spread on the Futures) will be more than offset but the absence of any daily interest fees after a few days (or week).  However, the Dividend adjustments I receive are higher than the aggregate daily interest cost (albeit the Dividend adjustment is only paid periodically) which is why I am trying to confirm that I would still receive these Dividend Adjustments if I trade Futures rather than DFBs?

Can anyone confirm this, or point me towards where I can find it on the IG site (I have looked but I must not be looking in the right places).

Thanks in advance!

 

[dmedin]

Only applies to DFB. 

[Kiwi_Rob]

Thanks for confirming that.

I might be missing something, but why would someone take a long-term position on an Index using Futures when the dividend adjustments more than cover the daily interest costs? 

Intuitively it should make sense to buy a Futures contract, but over the last three months my Dividend Adjustments have been more than my daily interest costs.  Have I just struck it lucky with timing (ie. holding contracts at the time that Dividends where paid) or have other traders also noticed this?

[dmedin]

8 minutes ago, Kiwi_Rob said:

Thanks for confirming that.

I might be missing something, but why would someone take a long-term position on an Index using Futures when the dividend adjustments more than cover the daily interest costs? 

Intuitively it should make sense to buy a Futures contract, but over the last three months my Dividend Adjustments have been more than my daily interest costs.  Have I just struck it lucky with timing (ie. holding contracts at the time that Dividends where paid) or have other traders also noticed this?

 

The only thing about DFB is you get charged daily interest whether you're long or short (it's a little hidden-away fee) and it can add up.

[Caseynotes]

12 minutes ago, dmedin said:

 

The only thing about DFB is you get charged daily interest whether you're long or short (it's a little hidden-away fee) and it can add up.

For longs you pay the daily interest fee but often for shorts you receive it, minus the admin fee. For longs you are borrowing money to buy the contracts, for shorts you are borrowing the contracts to sell for money. Stretching my memory here so don't mind if I get contradicted but I think shorts go negative (same as longs) if there is backwardation in the futures market.  

Edited June 3, 2020 by Caseynotes

[Guest BlahBlahTrader]

@CharlotteIG can you please explain. Why divident adjustments does not impact futures contract.. e.g. FTSE100 future long owners did not receive adjustment for todays ex-div on GSK, RDS, BP etc.. but DFB FTSE 100 long did.

Is it because FTSE 100 DFB will be adjusted down but Futures is not? In that case what will happen at the time of futures expiry date and roll over? All these is taken account at the time so ensure alignment of FTSE 100 DFB and futures?

[CharlotteIG]

20 minutes ago, Guest BlahBlahTrader said:

@CharlotteIG can you please explain. Why divident adjustments does not impact futures contract.. e.g. FTSE100 future long owners did not receive adjustment for todays ex-div on GSK, RDS, BP etc.. but DFB FTSE 100 long did.

Is it because FTSE 100 DFB will be adjusted down but Futures is not? In that case what will happen at the time of futures expiry date and roll over? All these is taken account at the time so ensure alignment of FTSE 100 DFB and futures?

Hey, 

With futures contracts dividends is already adjusted in whereas dailys have dividends added back in so when ex div dates arise we will adjust them on that date. 

This video may help understand the DFB: 

The futures contract however subtracts the dividends from it's price before it's open for trading. 

I hope this helps. 

[Guest BlahBlahTrader]

@CharlotteIG - can you please also confirm dividend impact on stock future. e.g. when I am long on Unilever DFB, I get paid for UL dividends. What will happen to UL dividends from now till end of the year if I hold long position on Unilever for Dec 21 future contract instead of DFB. Thanks.

[Guest BlahBlahTrader]

On 26/03/2021 at 11:49, Guest BlahBlahTrader said:

@CharlotteIG - can you please also confirm dividend impact on stock future. e.g. when I am long on Unilever DFB, I get paid for UL dividends. What will happen to UL dividends from now till end of the year if I hold long position on Unilever for Dec 21 future contract instead of DFB. Thanks.

@CharlotteIG - also if dividends are not paid on future contracts, then will the future price go down on ex-dividend date or it will create a gap with DFB quote on that day e.g. Aviva Dec-21 contract will be impacted on 8th April (ex-dividend date) and dividend will be settled in the account on that date?

[Guest BlahBlahTrader]

@CharlotteIG - Can you please advise on above

[15west]

I've been receiving dividends on US ETF futures. The info on the IG site states that overnight interest is rolled into the cost of futures, it doesn't say anything about dividends being withheld. As the OP and others point out there are many products for which trading futures would make no sense without the dividend.

[Guest John]

It would be good to get some clarity here. Do stock/ETF future spreadbets receive dividend credits, or is it just DFBs? Note this does not refer to index futures. The reason I ask is that the stock futures prices I'm seeing are higher than the price of the underlying (and DFB), therefore no dividend can be baked into the price.