Dividends on Tokenized Stocks and Indices
FREE2EX clients can receive dividend payments on tokenized stocks and indices.
Here we have collected answers to the most frequently asked questions.
What are dividend payments?
Dividend payments are distributions of a company's profits to its shareholders. The amount of dividends depends on the company's dividend policy and is approved at the shareholders' meeting. When a company makes a profit, it can reinvest it in the business, distribute it among shareholders, or do both.
Dividends can be paid in shares, cash, or property. When a company decides to pay dividends, it sets a fixed amount per share and a payment date. Dividends are usually paid once a year.
Which trades qualify for dividends?
The ex-dividend date is the date on or after which shares are traded without the right to receive the upcoming dividend. This date is determined by the company's dividend policy.
Clients who open positions before the ex-dividend date and keep them open until that date may receive or pay dividends, depending on whether they hold a Long or Short position.
Clients who open a position on the ex-dividend date will not receive or pay dividends.
How are dividends paid on indices?
Indices track the weighted average price of several assets grouped together. When a dividend is announced for one of the stocks included in an index, the price of that stock decreases by the dividend amount. As a result, the index price also decreases by the corresponding weighted amount on the ex-dividend date.
Clients who hold positions in indices will receive or pay the equivalent weighted dividend amount on the ex-dividend date.
Do holders of tokenized indices receive dividends?
Holders of tokenized indices can receive dividend payments, just like holders of tokenized stocks. Dividends are automatically credited to the user's exchange account after taxes have been deducted. Taxes are automatically withheld by liquidity providers.
Do dividends always result in a profit?
Dividends can result in either a profit or a loss.
If you hold a Long position in a stock or index, you may receive a dividend payment, which is automatically credited to your account.
If you hold a Short position in a stock or index, you may incur a loss. Your account balance may decrease by the dividend amount, which will be automatically deducted.
Are taxes deducted from dividend income?
FREE2EX does not withhold taxes directly. However, our liquidity providers, which pay dividends or collect dividend payments from clients, automatically withhold US taxes on the ex-dividend date.
Clients are responsible for paying any applicable income tax.
Please consult your tax advisor for more information about tax obligations.