How do dividends of the underlying security in a security futures contract affect the security futures price?
The owner of a long futures contract does not receive dividends, hence this is a disadvantage compared to owning the underlying stock. If the dividend is increased, and the future price would not change, there is an arbitrage possibility. For the sake of simplicity, assume that the stock suddenly starts paying a dividend, and that the risk free rate is zero (so interest does not play a role). One can expect that the future price is (rougly) equal to the stock price before the dividend announcment. If the future price would not change, an investor could buy the stock, and short a futures contract on the stock. At expiration he has to deliver the stock for the price set in the contract, which is under the assumptions here equal to the price he bought the stock for. But because he owned the stock, he receives the announced dividend. Hence he can make a risk-free profit consisting of the divivends. If interest do play a role, the argument is similar. The price of a future with an underlying that pays dividends is  As you can see, since the value of dividends is subtracted from the value of the underlying equity, the future's price is lowered if dividends rise. Compounding that effect with the dividend effect on equity prices, reducing their prices, the future should suffer more.
Both of these are futures contracts on the Ibovespa Brasil Sao Paulo Stock Exchange Index; the mini being exactly that, a mini version (or portion) of the regular futures contract. The mini counterpart makes trading the index more affordable to individual investors and hence increase liquidity. Not all futures contracts are deliverable.  Some futures are specified as cash settlement only. In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations.  As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts traded on CME, CBOT, NYMEX, and COMEX. Assuming your agreement with your broker allows you to exercise your right to take delivery, your broker will facilitate your delivery.  You will be required to pay the contracted amount (your buy price x contract size x number of lots), as well as a delivery fee, insurance, and warehousing fees.  In addition, your broker may charge you a fee for facilitating the delivery. You will be required to continue to pay insurance and warehousing fees so long as your holding of the underlying commodity is held in the exchange's designated warehouse. If you wish to take delivery yourself by having the commodity removed from the warehouse and delivered to you personally, then you will need to arrange this delivery yourself. Warehouse/delivery points obviously vary according the contract being exercised. See the CME Rulebook for available delivery points.  Some exchanges are more accommodating than others. The practicality of taking delivery very much depends on your personal circumstances.  An investment bank taking delivery of treasury bonds would be more practical than an individual investor taking delivery of treasury bonds.  This is because the individual investor would be required to deliver the bonds to a brokerage in order to sell them.  In the case of non-financial futures deliveries, it is hard to imagine any circumstance where an individual taking delivery would be practical. The price of a share of a mutual fund is its Net Asset Value (nav). Before the payout of dividends and capital gain distribution, the fund was holding both stock shares and cash that resulted from dividends and capital gains. After the payout, a share only holds the stock. Therefore once the cash is paid out the NAV must drop by the same amount as was paid out per share. Thus of course assumes no other activity or valuation changes of the underlying assets. Regular market activity will obscure what the payout does to the NAV. You will tend to find as options get closer to expiry (within 2 months of expiry) they tend to be traded more. Also the closer they are to being in the money they more they are traded. So there tends to be more demand for these options than long dated ones that are far out of the money. When there is this higher demand there is less need for a market maker to step in to assure liquidity, thus there should be no effect on the underlying stock price due to the high demand for options. I would say that market makers would mainly get involved in providing liquidity for options way out of the money and with long periods until expiry (6+ months), where there is little demand to start with and open interest is usually quite low. I am relative newbie in the financial market trading and as I understand it, the response from Victor is accurate in respect of trading CFD contracts. However, there is also the option to 'trade' through a financial spread betting platform which as its name suggests is purely a bet based upon the price of the underlying stock/asset. As such, I believe that your theory to short a stock just prior to its ex-dividend date may be worth investigating further... Apart from that, it's worthwhile mentioning that financial spread betting is officially recognised by HMRC as gambling and therefore not currently [2015/16] subject to capital gains tax. This info is given in good faith and must not be relied upon when making any investment and/or trading decision(s). I hope this helps you make a fortune - if it does; then please remember me! I believe this depends on the broker's policies. For example, here is Vanguard's policy (from https://personal.vanguard.com/us/whatweoffer/stocksbondscds/brokeragedividendprogram): Does selling shares affect a distribution? If you sell the entire position two days or more before the dividend-payable date, your distribution will be paid in cash. If, however, you sell an entire position within the two day time frame of the security's payable date, the dividend will be reinvested, resulting in additional shares. Selling these subsequent shares will require another sell order, which will incur additional commission charges. Dividends which would have been reinvested into less than one whole share will be automatically liquidated into cash. If you want to guarantee you receive no fractional shares, I'd call your broker and ask whether selling stock ABC on a particular date will result in the dividend being paid in shares. "Their is no arbitrage opportunity with ""buying dividends."" You're buying a taxable event. This is a largely misunderstood topic. The stock always drops by the amount if the dividend on the ex date. The stock opens that day trading ""ex"" (excluding) the dividend. It then pays out later based in the shareholders on record.  There is a lot of talk about price movement and value here. That can happen but it's from trading not from the dividend per se. Yes sometimes you do see a stock pop the day prior to ex date because people are buying the stock for the dividend but the trading aspect of a stock is determined by supply and demand from people trading the stock.  The dividends are paid out from the owners equity section of the balance sheet. This is a return of equity to shareholders. The idea is to give owners of the company some of their investment back (from when they bought the stock) without having the owners sell the shares of the company. After all if it's a good company you want to keep holding it so it will appreciate.  Another similar way to think of it is like a bonds interest payment.  People sometimes forget when trading that these are actual companies meant to be invested in. Your buying an ownership in the company with your cash.  It really makes no difference to buy the dividend or not, all other things constant. Though market activity can add or lose value from trading as normal." You are comparing apples and oranges: the charts show the capital appreciation excluding dividends. If you include dividends and calculate a total return over that period you see VSMAX up 132% vs. FSEVX up 129%, i.e. quite close. That residual difference is possibly due to a performance difference between the two benchmarks. Hart's answer regarding the difference between an index and a stock aside, remember that dividend yield is a passive measure.  It takes the announced dividend (which is a $/share amount) and divides it by the current market price.   So you can't assume that if you buy a stock that had a dividend yield of 4% for $100 that you're guaranteed 4% of the stock price in dividends.  If the price of the stock doubles, you'd still get $4, but the yield would drop to 2%.  Or the company could reduce (or even suspend) its dividends, which would reduce the yield if the stock price stayed flat. For an index like the S&P, it's easier to measure dividends on % yield terms rather then $/share terms since you'd have to own shares in every single company to get that amount, but on average the stocks in the S&P 500 pay X% in dividends (which are typically quarterly) - some pay more than that, some less, and some none at all. "The correlation I heard most about in economics/finance was that stock prices and bond yields were negatively correlated; as the stock market does better, bond yields fall (company's doing well as evidenced by stocks, so it's a good credit risk, so YTM of its bonds on the market goes down). The correlation, if any, between the stock and futures market should be visible in the actual price histories. Index prices may be useful, but what's more likely is that various future prices have correlation with various companies' stocks. Where the future reflects the price of a raw material that is a significant cost of goods sold for a company, you'll see these two move inversely to each other in the short term. I think that if there is a causative relationship here, its that futures prices influence stock prices, not the other way around. The futures market generally represents the cost side of a consumer goods producer's bottom line. The stock market represents its profits. As futures go up, profit expectations go down, putting pressure on stock prices. Industries that deal in services, or in other types of goods, can still be affected because a rise in the cost of something consumers need will cause them to spend less on other things which affects margins in those other areas. So, in the short and medium term, when the futures market goes up the stock market sees a dip, and vice versa.  However, companies adapt; they can put upward pressure on prices for their goods to restore their desired margins, usually by slowly increasing them to prevent sticker shock (though elasticity of demand plays a part; the more we need something no matter what it costs, the faster prices can increase). To maintain costs, they can make things cheaper using less expensive materials (more plastic, less steel). They can restructure production processes (translated: move factories offshore, or at least to ""right-to-work"" states with less union strength) to save costs elsewhere. All of these reduce costs and thus increase profits, but take time to implement. Many of these things reduce direct costs, reducing demand for the commodity and causing the futures prices to go back down. So, over the long term, these differences even out, and it's down to the things that affect the entire market (inflation, consumer/investor confidence, monetary policy)." 1) What's the point of paying a dividend if the stock price   automatically decreases? Don't the shareholders just break even? When the company earns cash beyond what is needed for expenses, the value of the firm increases. As a shareholder, you own a piece of that increased value as soon as the company earns it. When the dividend is paid, the value of the firm decreases, but you break even on the dividend transaction. The benefit to you in holding the company's shares is the continually increasing value, whether paid out to you, or retained. Be careful not to confuse the value of the firm with the stock price. The stock price is ever-changing, in the short-term driven mostly by investor emotion. Over the long term, by far the largest effect on stock price is earnings. Take an extreme, and simplistic example. The company never grows or shrinks, earnings are always the same, there is no inflation :) , and they pay everything out in dividends. By the reasoning above, the firm value never changes, so over the long-term the stock price will never change, but you still get your quarterly dividends. The ex-dividend date, prevents this, but people are still able to do this and this is an investment strategy. There are some illiquid and immature markets where prices don't adjust.  In the options market people are able to find mispriced deep in the money calls to take advantage of the ex-dividend date. It is called dividend capture using covered calls. Yes, somebody could buy the shares, receive the dividend, and then sell the shares back. However, the price he would get when he sells the shares back is, ignoring other reasons for the price to change, exactly the amount he paid minus the dividend. Dividends are not paid immediately upon reception from the companies owned by an ETF. In the case of SPY, they have been paid inconsistently but now presumably quarterly. The Paragraph talks about dividends given by Mutual Funds. Say a fund has NAV of $ 10, as the value of the underlying security grows, the value of the fund would also grow, lets say it becomes $ 12 in 2 months. Now if the Mutual Fund decides to pay out a dividend of $ 1 to all unit holder, then post the distribution of dividend, the value of the Fund would become to $ 11. Thus if you are say investing on 1-April and know that dividends of $1 would be paid on 5-April [the divided distribution date is published typically weeks in advance], if you are hoping to make $1 in 5 days, that is not going to happen. On 6-April you would get $1, but the value of the fund would now be $11 from the earlier $12. This may not be wise as in some countries you would ending up paying tax on $1. Even in shares, the concept is similar, however the price may get corrected immediately and one may not actually see it going down by $1 due to market dynamics.