Ignoring corporate actions is a common pitfall many CFD traders fall into. Longing or shorting the underlying share is rooted in technical and fundamental analysis, and simple dividend payouts or buybacks feel unimportant to the trading strategy.

However, even though you’re trading an instrument whose value is determined by the movement of an underlying asset, rather than the asset itself, these events can still impact your account balance.

It is vital to stay informed of the corporate actions of the underlying share and have a plan for the way you position trades and the length of time you consider holding a position.

Company Dividends

A dividend is the distribution of a portion of a company’s profits to its shareholders. It’s one of the primary ways companies reward investors and signals that the company is in good financial health.

Why Companies Do It:

• To share profits with investors
• To signal stability or maturity
• To attract dividend-focused shareholders

Example:

Woolworths declares a $1 dividend. If you’re long 100 CFDs, you get a $100 credit. If short, you lose $100 on the ex-div date.

CFD Implications:

Long Position: You receive a credit into your account on the ex-dividend date 

Short Position: Your account is debited the equivalent value.

Market Reaction:

Share prices typically drop by the dividend amount on the ex-div date on open.

Stock Splits and Reverse Splits

A stock split increases the number of shares and reduces the price per share, retaining the existing total market value e.g., your shares may become half the price but you will have double the holding. A reverse split (or consolidation) does the opposite so reducing the number of shares so increasing the price per share. 

Why Companies Do It:

• Stock splits make high-priced shares more affordable and attractive to retail investors and increase day-to-day interest.
• Reverse splits are less common but may often be used to lift a stock’s price to improve the perceived positive image of the company.

Example:

Tesla executed a 5-for-1 split in 2020. Holding 100 CFDs became 500 CFDs at 1/5th the original price.

CFD Implications:

Your CFD position is automatically adjusted to reflect the new ratio. Total value remains unchanged.

Market Reaction:

Splits can signal growth confidence and attract traders, often leading to short-term rallies. Reverse splits may be seen as a red flag and lead to selling pressure.

Rights Issue

A rights issue allows current shareholders to buy extra shares, usually at a discount to current share price to raise capital. Market response to a right issue will be dependent on the reason for this action and the overall perception as to whether it will benefit the company in the longer term.

Why Companies Do It:

• To fund growth projects, reduce debt, or raise liquidity
• A sign the company is facing financing pressure

Example:

Qantas may offer a 1-for-5 rights issue at a 20% discount to raise capital to enable the company to buy new aircraft. CFD holders do not get this entitlement.

CFD Implications:

You do not receive rights or participate in the offer. No direct adjustment is made to your CFD position.

Market Reaction:

May result in a price drop due to dilution. However, if the capital raise strengthens the company, prices may recover over time.

Share Buybacks

A company buys back its own shares from the market, reducing the total number in circulation.

Why Companies Do It:

• To return value to shareholders
• To improve metrics like earnings per share (EPS)
• To signal that management believes the stock is undervalued

Example:

BHP announces a $2 billion buyback. As shares are repurchased, the price may gradually rise due to the reduced supply of shares available to trade on the market.

CFD Implications:

There is no action on any CFD holding in the relevant company, so there is no account adjustment.

Market Reaction:

Often seen as mildly bullish, especially for undervalued companies. However, buybacks funded by debt may raise concerns.

Mergers and Acquisitions (M&A)

A merger or acquisition occurs when one company absorbs or combines with another. This may ultimately lead to a change in share structure or ticker symbol if it is approved by the shareholders of the company. There is often a situation where a proposal is presented to the company that results in an elevated share price even before any decision is made.

Why Companies Do It:

• To expand market share, gain assets, or eliminate competition
• Often part of a strategic growth plan

Example:

If Company A merges with Company B and issues 1 new share for every 2 held, your 200 CFDs in A would convert into 100 CFDs in the new entity.

CFD Implications:

Your existing CFD position is converted into the new merged entity (if applicable) using the agreed share ratio.

Market Reaction:

Target companies often rally when takeover bids emerge, while acquirers may see mixed reactions — depending on perceived value or cost of the deal.

Trading Halts

A pause in trading that is imposed by the exchange usually often due to a pending news release from the company about a new, unexpected corporate action or less commonly some regulatory concerns pending investigation.

Why Companies May Be Halted:

• Awaiting a price-sensitive announcement
• Pending merger, legal issue, or earnings release

Example:

If a US biotech stock CFD is halted for an FDA ruling, you’ll remain in your position until the underlying reopens.

CFD Implications:

If the stock is halted, your CFD is also paused. You cannot open or close positions until trading resumes (there will often be a second release informing when the stock is likely to reopen for trading).

Market Reaction:

Trading halts usually precede large price moves — often gaps and reopens — so significant gains or losses may be the result.

Summary

Just because you’re trading Share CFDs doesn’t mean you are insulated from corporate actions. In fact, understanding their timing (although many are unpredictable) and the possible impact of your holding is essential for planning trades and managing actual and potential account value adjustments.

It is prudent to have access to an economic calendar as part of your routine and ensure you check out earnings and ex-dividend dates of any stock CFD you hold or are considering for an entry.

Whether it’s a dividend or a major structural event like a merger, these changes can and will shift market sentiment towards the underlying stock. Make sure you stay aware of what is happening and what might happen next. The GO Market support team will always be there to assist with any questions you have before or after any corporate action.

Ready to start trading?

Try free demo Open account