What is the DAX 40 and how to trade it? - Index Series

Publish Date 01 Jan 0001
Education / 5 Min Read
Milan Cutkovic / Last Update 07 Dec 2021

The DAX 40 is not only Germany's leading stock index, but also widely followed worldwide. When you hear analysts commenting on the performance of stock markets in Continental Europe, the German index is very likely the first one that will be mentioned.

Before we discuss how to trade indices like the DAX, let us have a look at what this index represents and the largest companies included in it.

What is the DAX 40?

The DAX 40 (Deutscher Aktienindex) tracks the performance of the 40 largest German companies listed on the Frankfurt Stock Exchange. The constituents are picked by their free-float market capitalisation. It is Germany's most important stock index, but also widely followed by traders and investors worldwide, given the significant role Germany is playing in the global economy. 

The index was created on 1st July 1988 and started trading at 1163 points. It is often seen as an important indicator for the state of the German economy as it consists of some of the country's most important companies. The DAX is Germany's equivalent to the Dow Jones in the United States.

For the majority of its history, the DAX was known as the "DAX 30" as it consisted of the 30 largest companies listed on the Frankfurt Stock Exchange.

The change to 40 constituents was implemented in September 2021 and it included stricter index listing criteria and new de-listing rules. This came in response to the Wirecard scandal.

How is the DAX 40 calculated?

To be part of the DAX, companies must fulfill some basic criteria. They must be listed on the Frankfurt Stock Exchange, have a minimum free float of 10%, have a legal or operating headquarter in Germany, and publish their quarterly/annual reports timely.

The actual selection of the constituents is based on free-float market capitalisation, and this is reviewed quarterly. A single company cannot have an index weighting of more than 10%.

What are the DAX trading hours?

The DAX market hours are from 9 AM to 5:30 PM (Central European Time). Out of hours trading occurs from 5:30 PM to 10:00 PM and from 08:00 to 09:00.

The Dax Futures contract on the EUREX exchange is traded from 01:10 to 22:00 (Central European Time). On the MT4 platform, the DAX30.fs product can be traded from 02:15 to 22:59 (MT4 server time).

The Cash CFD - GER30 - can be traded from 18:00 Sunday to 16:59 Friday (New York Time) with a daily trading break from 16:59 - 18:00 (New York Time).

What sectors are in the DAX?

As we can see on the chart below, Chemicals is the largest sector, making up almost 16% of the index. This is closely followed by the Industrial sector at 15%. The Automobile sector with the two heavyweights Volkswagen and Daimler is next, followed by Pharma & Healthcare - together they make up roughly 20% of the index.

DAX 40 sectors

Source: Qontigo

DAX 40 share price

The DAX recently reached a record high of 16,290 points. The 52-week low stands at 13,009 points.

GER40 trading chart

How to trade DAX 40?

Contract for Difference (CFDs) is one of the ways you can trade the DAX cost-effectively and efficiently. Generally, brokers offer a CFD based on the cash index (GER30) and a CFD based on the underlying futures contract (DAX30.fs).

When you trade indices online using CFDs, you can speculate on the direction of the underlying instrument (the DAX) without owning it or any of its constituents. You can make use of leverage and you will have the ability to go both long and short.

This can prove especially useful during a downturn. Most investors want to avoid a reshuffling of their portfolio as the costs can quickly add up and it is incredibly difficult to time the market correctly. Therefore, instead of selling a large part of your portfolio when you anticipate a correction, you could use CFDs to speculate on falling prices.

Whether the cash CFD (GER30) or futures CFD (DAX30.fs) will be more suitable for you will primarily depend on your trading style. If you hold positions for a short period of time, you might prefer the GER30 as it has low spreads. On the other hand, if you are a long-term trader you might prefer the DAX30.fs as there are no swap charges.

How to invest in DAX 40?

Exchange Traded Funds (ETFs) are the most popular way to invest in the German index. It is more cost-effective than buying individual shares and the rebalancing is done frequently.

The largest DAX ETFs are:

  • iShares Core DAX UCITS ETF
  • Xtrackers DAX UCITS ETF
  • Deka DAX UCITS ETF

The ETFs with the lowest TER (total expense ratio) are:

  • Lyxor Core DAX
  • XTrackers UCITS ETF
  • Xtraders DAX UCITS ETF Income

Most DAX ETFs are similar and essentially just the track the performance of the index. When comparing the different ETFs, investors usually look at the total expense ratio (TER) - i.e. how much it will cost to hold the ETF - as well as how much money the ETF has under management and where it is domiciled.

  Trading the DAX 40 Investing in the DAX 40
Ways to trade Cash CFD, Futures CFD ETFs, Individual Shares
Market hours (CET)

GER30 (Cash CFD)

18:00 Sunday to 16:59 Friday (daily break 16:59 - 18:00)

9 AM to 5:30 PM

Out of Hours:

8 AM - 9 AM

5:30 PM - 10 PM

Initial capital required 0.5% 100%
Losses can exceed deposits Yes No
Timeframe Short-term Medium to long term

What are the top 10 companies in the DAX 40?

The 10 largest companies by market cap are:

  1. Linde - A multinational chemical company founded in Germany.
  2. SAP - A multinational software company based in Germany.
  3. Siemens - A multinational conglomerate headquartered in Germany.
  4. Volkswagen - Famous car manufacturer headquartered in Germany.
  5. Merck - Multinational science and technology company headquartered in Germany; not to be confused with "Merck & Co.", which is an US-based pharma company.
  6. Daimler - Car manufacturer headquartered in Stuttgart, Germany, famous for its Mercedes-Benz brand.
  7. Deutsche Telekom - Germany's largest telecom company headquartered in Bonn, Germany.
  8. Allianz - Multinational financial services company headquartered in Munich, Germany. 
  9. Airbus - European multinational aerospace company. Headquartered in the Netherlands. 
  10. Siemens Healthineers - Healthcare company headquartered in Erlangen, Germany.

Read more → What is the difference between the cash and futures market?

What moves the DAX 40?

There are a few things that move the DAX 40, the main ones are listed here:

Economic data - German economic data will affect the domestic stock market. Depending on the nature of the data, some companies will be more affected, while others will be less or not affected at all. For example, rising interest rates would have a larger impact on financial services companies than on others.

Earnings - Quarterly and annual results, forecasts or company news can all affect the share price of a company, and therefore the value of the DAX. Given the large weight that the top 10 companies in the DAX have, investors pay particular attention to their earnings and forecasts. You can make use of the table above to get an idea of which companies are more likely to move the DAX - the higher the weighting of the constituent, the higher the impact a sudden move in its share price can have on the index. 

Currency fluctuations - Trade plays an important factor in Germany. The country is the world's third largest exporter and third largest importer. This means that the value of the Euro can have a significant impact on the DAX. A rising Euro would be bad news for exporters, while a major devaluation of the currency would make life more difficult for importers.

What is the average return on DAX 40?

The table below looks at the net return of the DAX. We can see that the 5-year annualised return was 7.9%, with a 30-day annualised volatility of 16.8%.

DAX 40 returns

Source: Qontigo

What does the performance of the DAX show us?

Traditionally, the DAX has been lagging behind its US peers. The index was hit harder in March 2020 when the pandemic started to get out of control, and the recovery was slower too.

While there are different reasons for this, one factor is the lack of technology companies in the index. U.S. markets were boosted by the outperformance of leading tech companies such as Amazon, Apple and Google. Meanwhile, if we look at the DAX components, we will largely see a list of blue-chip stocks.

Despite that, the DAX has performed well over the past decade and managed to reach a new record high in November 2021. 

The advantages of the DAX 40 are:

  • Widely seen as a gauge for the health of the German economy.
  • Consisting of large, well-established companies with highly liquid shares.
  • Well diversified with no particular sector dominating the index in a significant way.

The disadvantages of the DAX 40 are:

  • The index is primarily consisting of blue-chip stocks that have a significant weight in the index. Investors looking for exposure to German technology stocks might not find the DAX suitable.
  • The German stock market is more consolidated than the U.S. market and changes in the DAX constituents happen less frequently than for example in the S&P 500 or NASDAQ 100.

List of NASDAQ 100 companies

Ticker Company Name
ADS ADIDAS AG
AIR AIRBUS SE
ALV ALLIANZ SE
BAS BASF SE
BMW BAYERISCHE MOTOREN WERKE AG
BAYN BAYER AG
BEI BEIERSDORF AG
BNR BRENNTAG SE
CON CONTINENTAL AG
1COV COVESTRO AG
DAI DAIMLER AG
DHER DELIVERY HERO SE
DBK DEUTSCHE BANK AG
DB1 DEUTSCHE BOERSE
DPW DEUTSCHE POST AG
DTE DT.TELEKOM AG
EOAN E.ON SE
FME FRESEN.MED.CARE
FRE FRESENIUS SE
HEI HEIDELBERGCEMENT AG
HFG HELLOFRESH SE
HEN3 HENKEL AG
IFX INFINEON TECH.AG
LIN LINDE PLC
MRK MERCK KGAA
MTX MTU AERO ENGINES
MUV2 MUENCH.RUECKVERS.VNA
PAH3 PORSCHE AUTOM.HLDG
PUM PUMA SE
QIA QIAGEN NV
RWE RWE AG
SAP SAP SE
SRT3 SARTORIUS AG
SIE SIEMENS AG
ENR SIEMENS ENERGY AG
SHL SIEMENS HEALTH.AG
SY1 SYMRISE AG
VOW3 VOLKSWAGEN AG
VNA VONOVIA SE
ZAL ZALANDO SE

 

Looking to learn more about other indices:

 

Start index trading with the DAX 40 stock market index. Sign up for an Axi live trading account today!

 

 

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.


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