Understanding and Trading the DAX 30 Index

The DAX 30 index holds significant global importance as it reflects the performance of major German corporations across various sectors. It provides valuable insights into the overall health of the German economy. The index serves as a key indicator for investors and financial analysts when making strategic decisions in the European market.

In this article, we learn everything about the index, including how to trade it.

Understanding the DAX 30 index

Introduced in 1988, the DAX 30 is a stock market index representing Germany's 30 largest blue-chip publicly traded companies trading on the Frankfurt Exchange. Deutsche Boerse (the financial marketplace operating the Frankfurt Stock Exchange) manages and calculates the index. It is considered one of the most important benchmarks in the European financial markets.

Deutsche Boerse offers real-time prices for the selected stocks within the index. The index value is recalculated every second, and its composition follows a capitalization-weighted methodology. This approach means that companies with larger market capitalizations hold a more significant influence on the DAX, reflecting their greater importance in the index's overall performance. Companies in this index belong to various industries like pharmaceuticals, consumer health, financial services, apparel, and more.

The index works on the premise that no single company can account for more than 10% of the DAX's overall capitalization to ensure diversification. The index has specific selection criteria, such as order book turnover and free-float market capitalization, to maintain a reliable and diverse portfolio.

Factors affecting the DAX 30 price

Individual company performance

The performance of each constituent company within the DAX 30 can significantly impact the overall index price as they are all differently weighted. Companies with higher weightage will have a more substantial impact on the index's prices and vice versa.

Furthermore, factors like positive earnings reports, revenue growth, successful product launches, and increased market share by individual companies can drive investor confidence and boost stock prices. On the other hand, poor financial results, management issues, or negative news about specific companies can lead to a decrease in their stock prices, dragging down the DAX 30 index.

For example, In early 2015, the Volkswagen emissions scandal caused VW's stock price to plummet, leading to a significant decrease in the DAX 30 index. The scandal also eroded investor confidence in other German automakers and the overall market.

Socio-political events

Socio-political events within Germany and globally can influence investor sentiment and, consequently, the DAX 30 index. Events such as elections, government policy changes, trade disputes, geopolitical tensions, and economic reforms can create uncertainty and volatility in the market.

Positive developments, stable political environments, and favorable economic policies can boost investor confidence and drive the index higher. Conversely, political instability, economic downturns, or unexpected events can lead to a decline in the DAX 30.

For example, in June 2016, the UK's Brexit referendum resulted in a majority vote to leave the EU, causing uncertainty in global markets, including the DAX 30. The uncertainty surrounding the future UK-EU relationship led to heightened volatility and a significant decline in the DAX 30 index.

Exchange rates

As many of the companies listed in the DAX 30 are multinational corporations with significant international operations, exchange rate fluctuations can impact their earnings and, in turn, the index price. A weaker Euro relative to other currencies can benefit export-oriented companies within the index as their products become more competitive in foreign markets. This can lead to increased revenues and stock prices and vice versa.

How is the DAX 30 index calculated?

The DAX 30 index is calculated using a weighted market capitalization approach with a cap of 10% on each company's weight. The weight of each company in the index reflects its market value as a percentage of the total market value of all 30 companies, which does not include restricted shares of the company. To be part of the index, companies must fall within the largest 30 companies by market value, and those whose market value falls outside the largest 30 companies are removed.

What are the two types of DAX 30 Index?

Price index

The DAX Price Index tracks the price performance of the 30 constituent companies without accounting for dividends and bonus payments. It provides a straightforward view of the index's overall price movements, reflecting changes in the stock prices of its components over time.

Total Return Index

The DAX Total Return Index, on the other hand, considers the reinvestment of dividends and bonus payments from the 30 constituent companies. This version offers a more comprehensive view of the index's performance by considering the total return an investor would receive if dividends were reinvested back into the index. It includes not only capital appreciation but also the income generated from dividends.

Both versions of the DAX index serve different purposes and cater to different types of investors. The Price Index is useful for understanding the pure price movements of the index. At the same time, the Total Return Index provides a more complete picture, especially for investors who reinvest dividends to compound their returns.

How are companies listed on the DAX 30 index?

To be listed on the DAX, companies must meet stringent selection criteria and undergo quarterly reviews for ongoing compliance as follows –

Listed companies must submit regular financial and audited earning reports, as well as meet minimum capital requirements
Have a legal or operating base in Germany
Maintain a minimum free float of 10%
Be listed in the Prime Standard segment (subject to strict transparency rules)

Top 10 companies in the DAX 30 index

Here are the top companies in the DAX 30 index as of July 2023:

SAP: Founded in 1972, SAP is a multinational software corporation specializing in enterprise resource planning (ERP) software solutions for businesses. It has the index's highest market capitalization (cap), equaling $165.37 billion.
Siemens: A global conglomerate founded in 1874 and operating in electrification, automation, and healthcare, providing a wide range of products and solutions. Its market cap is the second largest in the index, equal to $134.67 billion.
Airbus: A 2000-founded aerospace corporation that designs, manufactures, and sells commercial and military aircraft. It has a market cap of approximately $119.01 billion.
Porsche: A luxury automobile manufacturer founded in 1931, Porsche is known for producing high-performance sports cars and luxury SUVs. With a market cap of $113.61 billion, it is the fourth largest company in the index.
Deutsche Telekom: A 1995 telecommunications company offering fixed-line and mobile communication services, as well as internet and digital services. Its market cap is equal to $109.68 billion.
Allianz: Allianz is an 1890-found global financial services company engaged in insurance and asset management, offering a wide range of insurance products and investment solutions. It has a market cap of $96.64 billion.
Mercedes-Benz: Incorporated in 1926, Mercedes-Benz is a luxury automobile manufacturer and division of Daimler AG, known for its innovation, safety features, and luxurious driving experience. Its market cap is equal to $85.42 billion.
BMW: A 1916-founded global automobile and motorcycle manufacturer renowned for producing high-quality luxury cars and motorcycles. It has a market cap equal to $79.48 billion.
Volkswagen: A leading automobile manufacturer with a diverse range of vehicles, Volkswagen was founded in 137 and includes passenger cars, commercial vehicles, and electric vehicles in its product offerings as of the present scenario. Its market cap is the ninth largest in the index, equal to $78.72 billion.
Merck KGaA: A 1668 multinational pharmaceutical, chemical, and life sciences company focusing on developing pharmaceuticals, biotechnology products, specialty chemicals, and laboratory equipment. Its market cap is the tenth largest, equalling $75.69 billion.

*Past performance is not a reliable indicator of future performance.

How to trade the DAX 30?

Trading the DAX 30 directly

To trade the DAX 30 directly, investors can buy (long) or sell (short) shares of the individual companies listed in the index. They can purchase the actual stocks through a brokerage account, allowing them to participate in the performance of the specific companies comprising the DAX 30 index.

Trading the DAX 30 through Futures/Options/ETFs

Another way to trade the DAX 30 is through financial derivatives like futures and options or Exchange-Traded Funds (ETFs) that track the performance of the entire index. Futures and options contracts allow investors to speculate on the future price movements of the DAX 30 without owning the underlying stocks. ETFs offer a more diversified and cost-effective approach to investing in the entire index, as they hold a portfolio of assets replicating the DAX 30's performance.

Trading the DAX 30 via Contracts for Differences (CFDs)

Another way to trade DAX 30 is through Contracts for Differences (CFDs). CFDs are financial instruments that allow traders to speculate on the price movements of the DAX 30 without owning the underlying assets. CFD trading enables investors to take both long and short positions, gaining from both the index's upward and downward price movements. CFDs offer leverage, which means traders can control a larger position with a smaller initial capital outlay, but it also increases the risk involved.

Here are the steps to trade DAX 30 index through CFDs:

Choose a reliable CFD broker offering DAX 30 CFDs.
Open a trading account and complete the necessary verifications.
Deposit funds into the trading account.
Access the broker's trading platform.
Locate DAX 30 CFD (GER30/DE30) in the instrument list.
Trade the DAX 30 and monitor the index movements.
Close the trade at any time during market hours to realize gains or limit losses.

Trade German companies in the DAX 30 index

Trading DAX 30 allows traders to gain exposure to the performance of leading German companies. Traders can stay updated with German news and analysis related to the index, helping them make informed trading decisions.

However, it is important to understand the risks associated. The DAX 30 index, like any other stock market investment, is susceptible to market volatility, and its value can fluctuate. Economic conditions, geopolitical events, and industry-specific issues can all have an impact on the index's and underlying companies' performance. Before investing in the DAX 30 index or any other stock market index, traders must analyze their risk tolerance, carry out thorough analysis, and carefully consider their investment plan.

Disclaimer:

All material published on our website is intended for informational purposes only and should not be considered personal advice or recommendation. As margin FX/CFDs are highly leveraged products, your gains and losses are magnified, and you could lose substantially more than your initial deposit. Investing in margin FX/CFDs does not give you any entitlements or rights to the underlying assets (e.g. the right to receive dividend payments). CFDs carry a high risk of investment loss.

What is DAX 30 Index?