German Stock Index 40 – Index

Instrument description

Germany has always been an economically stable country and regarded as the leading economy in Europe, along with the U.K. and France. The benchmark of economic stability and growth of Germany is given by the German stock market index called ‘DAX’ which stands for ‘Deutscher Aktien Index.’ It is known as Dax 40 as it tracks 30 of the biggest companies that are listed in the Frankfurt Stock Exchange (FSE).

Germany is not only a prominent member state of the European Union (E.U) but also part of the Euro-Zone that consists of 19 out of 27 countries of E.U that have adopted Euro as the official currency. Being part of the Euro-Zone, the Dax 40 is said to be a measure of not only the economic health of Germany but also of the European region.

History of Dax 40 Index

The German stock market index, the Dax 40, was launched on July 1, 1988, by the Frankfurt Stock Exchange with a base level of 1000. The modern DAX Index is said to be a continuation, or an updated form of an older index called the Borsen-Zeitung, which was introduced by the German financial newspaper in 1959. The DAX index comprises 30 of the financially strong and stable companies that operate in various sectors of the market. The 30 companies that feature on the elite list of Dax 40 are selected based on their minimum capital requirements, liquidity, and yearly financial reports.

The Dax 40 trades in the Frankfurt Stock Exchange (FSE), which is part of the Deutsche Borse Group. The FSE is regarded as the 3rd largest in Europe and the 10th largest stock exchange in the world due to market capitalization of the listed companies.

Since its launch in 1988, other German indices were added in the Dax 40 by the Deutsche Borse Group and include

• MDAX: It was integrated in 1996 and consists 50 of the largest companies after the DAX but does not include companies from the technology sector
• TecDAX: It was added in 2003 and contains 30 biggest companies after the DAX and includes companies belonging to the technology sector
• HDAX: The HDAX is the name given to a broad index that replaced the DAX 100 and combines the DAX, TecDAX, and MDAX.

The DAX Index had a fantastic start, and it crossed 2000 points in 1993 and the 5000 points mark in 1998. The DAX was trading at 7500 points at the start of 2000, but the Dotcom boom affected the market considerably, and there was a Bearish trend for three years, and the index was trading below 2500 points in 2003.

The DAX recovered and touched 7500 points again, but the recession in 2008 saw the DAX losing 4000 points. But the DAX recovered the second time with a significant surge and made a new record when the Index value touch 12,000 points on March 16, 2015

The DAX Index may be more volatile than other global indices, but the companies that are included in the Dax 40 list are financially quite strong and stable. It is quite an amazing fact that out of the original companies first listed in the DAX index, many are still present in the list. The Dax 40 is composed of companies that do business in numerous sectors such as chemicals, automotive, pharmaceuticals, apparel, finance, and telecommunication. Some of the popular companies in the Dax 40 are BMW, Commerzbank, Bayer, Deutsche Bank, BASF, Allianz, Daimler, Siemens, Adidas, Henkel, SAP, and Volkswagen.

How the value of Dax 40 is calculated

Like the CAC 40 index in France, and ASX 200 index in Australia, the Dax 40 is also market capitalization or commonly called as capitalization-weighted, where the value is measured by the free-float method where the share price is multiplied with the number of shares. The market capitalization of Dax 40 is more than €970 Billion, and the blue-chip stocks of the 30 biggest companies represent from 75% to 80% of the total German market capitalization. Some of the parameters that a company must follow in order to get listed on the Dax 40 are

• >The company should be publicly listed for 3 years or more
• The company should be part of the ‘Prime Standard’ on the Frankfurt Stock Exchange
• >The company must publicly trade 15% of its market cap
• >The company should operate and generate revenue in Germany; and
• No company can represent more than 10% of the DAX index value

The companies are added or removed from the Dax 40 listing after every quarter based on their market performance and market capitalization. The performance of the companies is reviewed by Deutsche Borse, also called the Board of the German Stock Exchange. As the DAX Index is market cap, the bigger companies have more influence on the index as compared to small scale companies.

How to read the price change in Dax 40

The DAX Index is quite a volatile financial market and sees more activity as compared to exchanges in U.K. and U.S. The volatility in DAX Index is what attracts both short term traders who can speculate on the price movements and market direction, and get a chance to potentially profit but with the certain risk that needs to be considered.

The trends in the Dax 40 can easily be noticed and analyzed through live price charts, which is also a reason why the DAX Index is so popular among traders. The pattern and trends are well defined across different timescales and help the traders to analyze the value of the index correctly.

The Dax 40 showed Bullish trend from August 2019 to February 2020, and the Index value traded between ranges of 11500.000 to 13500.000. The Dax 40 reached the highest value of 13822.943 on February 19, 2020. But there is a considerable downward and Bearish trend since the end of February, and Dax 40 recorded the lowest value of 8432.910 on March 18, 2020. The Dax 40 is starting to gain points after the fall in mid-March, and the index last traded at 12260.570 EUR. The Bid price is 12298.4, while the Ask price is 12295.8.

How to trade in Dax 40

Like the prominent global indices, the DAX Index cannot be bought or sold like a stock. However, you can invest in the DAX Index with the help of derivative financial instruments such as Futures, or Contract for Difference (CFDs). High volatility, tight spreads, and long trading hours of the DAX Index provide opportunity for traders to have the possibility to potentially profit.

The trading hours in the Frankfurt Stock Exchange are from Monday to Thursday and start from 9:00 and close at 17:30 (CET). The Dax 40 is seen as a performance index, which means that the dividends or money given by the company to its shareholders is reinvested.

In recent years, CFDs have grown to be one of the most popular investment instruments. CFDs are a contract where a broker and trader agree to pay the difference in the price of the asset from the start to the end of the trade. CFDs attracts traders as the speculation of the price difference is done on the underlying asset, and the trader does not have to buy or own the asset. The trader also gets the advantage to trade using leverage and trade in both directions, which is going long (Buy) and going short (Sell). For instance, if the trader thinks that the value of Dax 40 will rise, if would Buy (Go Long), and similarly, if the trader thinks the value of Dax 40 will fall, he would Sell (go Short).

What causes the price change of Dax 40?

The value of the Dax 40 is affected by numerous factors that influence the overall economic growth and stability of Germany. The basic economic principle of supply and demand is one of the most crucial factor as it affects the import and export activities, which will, as a result, affect the entire value of the index. Some of the other factors include Gross Domestic Product (GDP), interest rates, inflation, and unemployment rate. Apart from the macroeconomic factors, the trade relations with foreign countries, the political situation in E.U, and global political news and events also influence the movement and direction of the DAX Index.

As Germany is an essential part of Euro-Zone, the European currency fluctuations also impact the Dax 40. Both, the traders are investors advised to keep themselves updated on the financial news of Germany and Europe when doing trading activity in the Dax 40.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.