Changes to Guaranteed Stops on Shares and Sectors

From 12 September 2009 we are changing the way that we handle Guaranteed Stops for spread betting shares and sectors when a dividend is paid.

When a share is quoted ex-dividend, the market will generally adjust the price of the share down by the amount of the dividend. We post an equivalent dividend adjustment to your account to ensure this does not affect the overall profit and loss of your position.

For positions with Guaranteed Stops, the dividend adjustment also affects the equity at risk. To counter this effect, limited-risk positions held over an ex-dividend date will have the Guaranteed Stop level amended down by the dividend amount.

Our changes will make sure that the total risk associated with Guaranteed Stops is not affected by shares going ex-dividend. We hope that this provides you with a fairer, simpler, and easier-to-use dealing system.

Example adjustment for a ‘sell’ bet

On 17 November our Daily Vodafone price is, hypothetically, quoted at 128 - 130.

You decide to ‘sell’ £10 a point at 128p, and place a Guaranteed Stop at 138p. Your initial equity at risk is £100 (138p - 128p = 10p: 10 x £10 = £100).

The following day the stock is quoted ex-dividend and, all things being equal, we would expect the share price to drop by the dividend amount. Assuming a 2p dividend, the increased profit resulting from the 2p price fall is balanced by the dividend adjustment to your account, a debit of £20 (2 x £10 = £20). If your stop remained at the original level of 138, you would be risking the initial £100 plus the £20 that was debited from your account.

However, with the changes the level of your Guaranteed Stop will be lowered by the dividend amount. This ensures the initial equity at risk is maintained - in this case keeping the total risk unchanged at £100 (136p - 128p = 8p: 8 x £10 = £80: £80 plus the £20 dividend = £100). Note there is no adjustment to your opening level.

Example adjustment for a ‘buy’ bet

On 7 October our Daily Tesco price is, hypothetically, quoted at 380 - 382.

You decide to ‘buy’ £5 a point at 382p, and place a Guaranteed Stop at 360p. The most you can lose on the position is £110 (382p - 360p = 22p: 22 x £5 = £110).

Tesco decide on a 4p dividend, and on the following day the stock is quoted ex-dividend. Again, we would broadly expect the share price to drop by the dividend amount. To account for the effect of the price drop, we credit your account £20 (4 x £5 = £20). If your stop remained at the original level of 360, you would be risking the initial £110 minus the £20 that was credited to your account.

However, with the changes the level of your Guaranteed Stop will be lowered by the dividend amount. This ensures the initial equity at risk is maintained - in this case keeping the total risk unchanged at £110 (382p - 356p = 26p: 26 x £5 = £130: £130 minus the £20 dividend = £110). Note, there is no adjustment to your opening level.

Find out more about Guaranteed Stops.

Last updated: 15/09/09