How to trade the DAX?
How does a trader get started on this market
Like any stock index, the DAX can’t be bought and sold like a stock or a share or cryptocurrency. Instead, you’ll have to trade it using derivatives such as futures or CFDs. The main exchange for DAX futures is the Eurex, which offers trading on DAX futures from 7am – 9pm (UK time).
CFD trading and spread betting, meanwhile, let you go long or short on the DAX without having to deal with an exchange. You instead deal directly with a market maker (a broker), who regularly takes the other side of the position. This allows the broker to enable overnight trading and ‘simulate’ the market until the actual market opens again in the morning.
To set up a brokerage account, do a lot of research on brokers in your country and read many reviews on their withdrawal process and trade execution.
The DAX tracks the value of 30 of the biggest, most liquid companies trading on the Frankfurt Stock Exchange (FSE) – the biggest stock exchange in Germany, and tenth biggest overall.
Germany is the largest economy in the European Union, and the fifth largest economy in the world. Its listed companies are a huge factor in that prominence, and the 30 companies that make up the DAX represent some 75% of the total market cap of the FSE.
Exchange: Frankfurt Stock Exchange
Weighting: Capitalisation weighted
Methodology: Free float
Trading hours: 10:00am – 6:45pm (UK time)
Base date: 30 December 1987
Base level: 1000
Among the many regional stock indexes of Europe, the German stock exchange is one of the most actively traded exchanges in the region. The DAX futures come in various forms from the standard futures contract to the mini-sized DAX futures with a multiplier of 5 EUR. The DAX futures are priced in euro which is then converted to U.S. dollar.
Two Main DAX futures contracts
DAX FuturesMini-DAX FuturesUnderlyingDAX30Index TypeTotal return in EUREurex ProductFDAXFDXMContract ValueEUR 25EUR 5Minimum Tick0.5 index points1 index pointSettlementCashFinal SettlementThird Friday of the contract monthTrading hours08:00 – 20:00 CET
How is the DAX calculated?
What is the criteria for being listed
The indices of Germany are all taken from the ‘Prime Standard’ segment of stocks on the Frankfurt Stock Exchange (FSE), which has strict regulations governing transparency that are imposed as part of German law.
Any listed company that doesn’t fulfil the requirements to be Prime Standard will be designated General Standard, and will not feature on the DAX, MDAX, TecDAX or HDAX.
Companies are added or removed quarterly, on the basis of their market cap and the size of their order book.
In order to be listed on the DAX, a company has to:
Be publicly listed for at least three yearsHave at least 15% of their market cap traded publicallyBe a part of the ‘Prime Standard’ segment on the FSERepresent the German economy (by generating sufficient revenues or being headquartered within Germany)
The DAX is a capitalisation-weighted index, meaning that companies with a higher market cap will have a bigger influence on its price. No single company can have a DAX weighting of more than 10%.
Valuations are calculated using a free-float methodology, so it only takes the number of readily available shares into account – ignoring those that can’t actually be bought and sold (like shares held by governments, or other institutions).
Prices are taken from the Xetra trading venue, which handles 90% of trading on the FSE, and are calculated every second.
Dax price history
The DAX posted strong growth in its first few years, surpassing 2000 points in 1993, and 5000 in 1998. As the new millennium dawned, the DAX was rallying: at one point in early 2000 it was above 7500.
The unravelling of the dotcom boom in the early 2000s was disastrous for the DAX, though, bringing a sustained bear market for the next three years. By early 2003, the index was down below 2500 once more.
By the time of the 2008 financial crash, the DAX had just got back above the 7500 level, before once again seeing a major move lower – this time dropping below 4000. For the second time, though, it recovered. In the decade after the crash several records were broken, including the 12,000 barrier on 16 March 2015.
History of the DAX
The DAX actually began as the Börsen-Zeitung, started by a major German financial newspaper in 1959. However after the change, the DAX was launched by the FSE on 1 July 1988, with a base value of 1000 as of 30 December 1987.
Since 1988, other indices have gradually been added by the DAX’s operator, Deutsche Börse, including the:
MDAX: Added in 1996, it represents the 50 biggest companies after the DAX, excluding those in the technology sectorTecDAX: Added in 2003, it represents the 30 biggest companies after the DAX within the technology sectorHDAX: Replaced the DAX 100 in 2003, and combines the DAX, MDAX and TecDax