Index and share CFDs

A reader in Mumbai opens an index CFD on a foreign basket at 10:00 local time. The foreign exchange is closed, so the CFD does not move. At 18:30 local time the foreign session opens and the CFD starts to track the basket. The reader has held the position for eight and a half hours without a single price change.

Each index CFD has a daily maintenance window. During that window the broker may widen the spread, suspend trading for a few minutes, or roll the position to the next contract. The window follows the home exchange, not Indian hours. For a United States index the window often falls between 01:30 and 02:00 India time. A position left open across that window can be repriced at the broker's next available quote.

Write down two times before entering: the exchange open and close in India time, and the daily maintenance window in India time. The broker's contract specification lists both. If the specification does not state the maintenance window, ask support in writing. Keep the reply. A screenshot of the specification is enough evidence if a dispute arises later.

A company inside an index pays a dividend. The index itself does not pay anything, but the index CFD price is adjusted because the underlying shares drop by the dividend amount on the ex-dividend date. The broker credits or debits the account in cash to reflect that drop. The amount is the dividend per share multiplied by the number of shares represented by the CFD, minus any withholding tax the broker applies.

A share CFD works the same way for one company. If the reader holds a long position on the ex-dividend date, the account usually receives a cash adjustment. If the reader holds a short position, the account usually pays it. The adjustment is not a profit or a loss on the trade itself. It offsets the price change in the CFD that happens when the shares go ex-dividend.

The exact timing and the tax treatment vary between brokers. Some credit the adjustment on the ex-dividend date, others on the payment date. Some apply a withholding rate set by the company's home country, which India may or may not allow as a credit. Check the contract specification for the adjustment date and the tax note. Do not assume the amount equals the dividend shown on the company's investor page.

A share split doubles the number of shares and halves the price. A share CFD contract is adjusted so the reader's position value does not change. The broker may change the number of shares in the contract, the price, or both. The adjustment happens automatically, but the reader sees a new position size and a new entry price on the platform. The gross profit or loss stays the same.

A merger or a takeover can remove the company from the index. If the index provider replaces the company, the index CFD continues to track the new basket. A share CFD on the acquired company may be closed at the takeover price, or converted into a CFD on the acquiring company. The broker's contract specification states which. A position held through a merger can be closed without the reader placing an order.

A rights issue or a special dividend can also trigger an adjustment. The broker publishes a corporate events calendar for each CFD. The calendar lists the event date, the adjustment type, and the expected cash amount if known. Check the calendar for every open position at least once a week. A position with a corporate event in the next five trading days carries a risk that a currency pair does not.