Corporate actions
What is a corporate action?
A corporate action can be defined as an event that brings about a material change to a stock or an event that is initiated by a firm that has an impact on its shareholders.
Dividends, stock splits, acquisitions, mergers and stock buy backs are all examples of corporate actions.
Dividends
If you hold a position in a company that announces a dividend, there will be an adjustment made to your opening price on the day that the stock goes 'ex-dividend'.
Although the adjustments themselves are identical for both long and short positions, the effect of such an adjustment to a long position is, in terms of profit and loss, the exact opposite to the effect of such and adjustment to a short position. That is, a downward adjustment to a short position negates any profit from the drop in price caused by a dividend payment, whereas a downward adjustment to a long position negates any loss.
Long positions
On your daily statement the dividend adjustment will appear under the heading: corporate action.
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