What is the Dax 30 Index? The Dax 30 Index is a moving market price that you can trade like a blue-chip stock. The price of the index represents the amalgamated stock prices of the top 30 German companies trading on the Frankfurt Exchange. The Dax 30 Index, also simply referred to as ‘The Dax’, stands for Deutscher Aktien Index and on spread bet and CFD brokers, the DAX may also be called Germany 30.
The team here at Trade Room Plus have been successfully trading the DAX for years so we’re well placed to help anyone looking to understand more about the Dax 30 Index and the best trading strategies to use within it.
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The DAX 30 Index Explained
To the uninitiated, online trading can sometimes feel like it has its own language, so in this article we will aim to shine a light on and de-mystify the DAX 30 Index. We will cover what it is, how it works, and everything you need to know about trading within it.
The largest and most actively traded German companies are tracked using The Dax Index. Germany is the biggest economy in the European Union and the fourth largest in the world based on the IMFs world economic data outlook. This means that the index is considered to be an excellent gauge of the overall health of the German and European economy.
The 30 companies listed, by capitalisation make up 75% of the entire Frankfurt Stock Exchange (FSE) and are made up of big multinationals that influence both domestic and global economy. The companies that make up The Dax are very resilient.
The DAX is very similar to the Dow Jones Industrial Average (DJIA), this tracks the top 30 large publicly owned companies on the New York Stock Exchange and the FTSE100 which tracks the top 100 companies on the London Stock Exchange. Exchanges are marketplaces for the trade of securities, commodities, derivatives, and other financial instruments.
What Do I Need To Know About The Dax 30 Index?
- The DAX was created on December 30, 1987 with a base index value of 1,000.
- The prices used to calculate the DAX Index come through Xetra, an electronic trading system
- The DAX 30 is operated by the Deutsche Börse.
- The regular trading day of the DAX 30 is from 9 a.m. to 5:30 p.m, Frankfurt time. Monday through Friday.
- Most providers will also give pre and post-market indications to help traders gauge where markets are expected to open and where they are quoted after the official market has closed.
- There are two entirely different versions of the DAX 30. One is the performance index, which measures total return, including dividends. The other version is called the price index, and it only takes into account the price of the fund, not any other earnings including dividends.
When Do Companies Get Listed On The Dax 30 Index?
Order book volume and market capitalisation are the primary listing factors for the index but as with all exchanges around the world the DAX also has specific listing requirements for the companies that want to offer their securities for trading.
What Is Market Capitalisation?
Market Capitalisation refers to the size of the company and is also referred to as large-cap, mid-cap and small-cap. Market Capitalisation is a measure of the dollar value of a company and is worked out by multiplying the amount of outstanding shares by the current market price. Large, mid and small cap companies generally fall into the following brackets $10 billion or more, $2 - $10 billion and $300 million - $2 billion respectively.
To Feature In The Dax Index Companies Must:
- Be publicly listed for at least three years
- Have at least 15% of their market cap traded publicly
- Be a part of the ‘Prime Standard’ segment on the FSE - meaning they meet stringent transparency rules
- Represent the German economy (by generating sufficient revenues or being headquartered within Germany)
As the DAX represents the cream of the crop when it comes to publicly listed German companies, there are a fair number of requirements that need to be met in order to feature. To be listed on the DAX, companies must meet the criteria above, submit regular financial and auditing reports and meet minimum capital requirements. Companies are then added or removed quarterly on the basis of their market cap and the size of their order book.
How To Trade Dax
The Dax 30 is one of the world’s biggest marketplaces and actively traded indices that provides a large degree of liquidity and long trading hours. Traders use derivatives such as futures or CFDs to trade Dax and the main exchange for DAX futures is the Eurex.
Below we’ve covered some key definitions and important things to be aware of when trading with Dax
What is CFD trading?
CFD stands for ‘contract for difference’ and is a financial derivative. This simply means that you can speculate and trade on rising or falling prices without taking ownership of the underlying asset. Traders using CFDs choose to buy, sell or hold based on whether they think an asset will rise or fall in price and it is common to use CFDs to trade in a wide range of markets including shares, forex, indices and commodities.
What does market liquidity mean?
Liquidity refers to how quickly assets can be sold at their specified price. For example, In a liquid market securities can be sold quickly with little reduction in price but in an illiquid market the ability to sell quickly will result in the need for a significant price drop to generate sales.
What are Futures?
Futures are simply an agreement to buy or sell a quality of stock, security or commodity at a set price on a specified date in the future. Commodities, currents and indexes can be traded in futures and they can be bought or sold any time the market is open until the fulfillment date.
There is over 30 years of data available regarding The Dax and as a highly consistent market it is ideal for traders to use technical analysis to benefit from relatively easy to spot trends. Technical analysis reviews historical trends and recent behaviour in stock prices and volume to predict future price movements and market sentiment.
Traders should look to trade Dax 30 when the market is at its most liquid. Trading in low-liquidity conditions leaves traders at risk of low-volume ‘spikes’ or ‘blips’ that can break outside of normal trading patterns.
Traders should remember not to trade on German bank holidays as the volumes will be low, moves unpredictable and your strategies will be less likely to work. This applies to all other major financial markets in the world too.
What Moves the Dax 30?
As with all markets, there are lots of variables that affect the overall value of the Dax 30 but what should you pay particular attention to the following:
- Exchange rates for the Euro - weak or strong rates impact importers and exporters in different ways
- Brexit - A soft or hard exit strategy will impact companies in different ways.
- Company weightings in the index – a 5% price movement in one company within the Dax can have a completely different impact on the index than a 5% move from another company with a different index weighting.
Dax Trading Strategies
All trading strategies are based on predefined rules that help traders to make trading decisions such as when to enter or exit a trade. The decisions you make in line with your trading strategy should move you closer to meeting your financial goals so whatever market you’re trading in, the reasons for your decisions, discipline required to execute timely trades and sound trading psychology are all consistent and this is no different for Dax trading strategies,
To get the most from your Dax trading strategy:
- Have a plan
- Analyse your performance
- Analyse the markets you’re trading in
- Know what you can and can’t control - get in and out at the right time.
- Know your attitude to risk
- Give your strategy time to work
- Be prepared to lose money
- Find a good teacher & practice
- Know what kind of investor you are
- Enjoy what you do
At Trade Room Plus we believe that successful traders are made, not born and that in order to make money in stocks you need to learn how to trade properly and be willing and able to spend money to make a profit. You should also pay close attention to the following trading tips:
- Fully understand the product you are trading and the medium you will use to trade it. (Futures, spread bets or CFDs for example).
- Don’t be swayed by market noise and the recommendations of others. The decision to enter a trade is yours and yours alone so you should be completely happy with your decision and know your reasons behind your actions.
- Select your timeframe for the trade, such as one hour, one day, one week or several weeks.
- Decide your entry level, exit point and stop loss before you go anywhere near an online trading platform. If you are using technical analysis to decide levels to trade Dax 30, make sure you have rigorously tested your analysis using trading simulators before trading and that you are comfortable entering the position.
- Do not place a trade - either a long or a short - without placing a firm stop loss.
- Before entering a trade, decide your risk-reward; for example, risk one unit to make three units and never risk a large percentage of your capital on any one trade. Keep trades to less than 5% of your fund at all times.
- Always record your trades. This will enable you to reflect on what worked, what didn’t so you can adapt and improve your actions next time.
- Never trade when you are tired, distracted, emotional or bored.
Swing Trading, Breakout Trading and Scalping for Dax 30
When you’re confident you have a rock solid trading strategy that provides the big picture and methodology for defining when you enter and exit trades for The Dax 30 Index, it’s time to focus your attention to how often you will trade and how long you will keep positions open for. This is where trading strategies such as swing trading strategies, breakout trading strategies and scalping come in to play.
Swing trading capitalises on short term trends and generally takes place over one to several days. Technical analysis is used to spot short term price momentum and swing traders will pay particular attention to patterns and trends in the market over the price of the stock market.
Breakout trading requires traders to recognise the signs that the market is about to breakout. This means that a stock price is moving outside of a defined support or resistance level with increased volume and can occur in all types of marketing environments.
Scalping, also referred to as micro trading, is all about making very small profits over and over again that look to take advantage of small quick movements in the markets over a matter of seconds or minutes. Traders implementing scalping strategies may place between 10-100 trades a day.
There are two general market types to look out for in your Dax 30 trading strategies. Trending markets and sideways markets. These present lots of great trading opportunities and you can check out our videos on using swing, breakout and scaling strategies on the Dax for both of these markets here.
If you want to trade Dax 30, there is something for everyone with these three strategies. So even if you’re a part time trader, can dedicate 9-5 every day or only want to trade for days or weeks at a time - the Dax 30 can work for you.
If you can’t tell by now, we love the DAX at Trade Room plus and we have shared lots of our experience with you in this article: Find out more about Dax 30 Trading Strategies
What Is the Difference Between The Performance Index And The Price Index?
There are two versions of the DAX 30 - the first is a performance index and the second is the price index and both are very different to each other.
The performance index is the most commonly quoted version of the Dax 30. It measures total return including dividends whereas the price index only reports the price of the fund and no other earnings like dividends. Traders should be aware of the different versions and how the prices are listed to prevent confusion in trading.
What Companies Are In The Dax 30 Index?
Visit sites like Bloomberg and The Financial Times for a real time view of the performance of the companies featured on The Dax and current stock prices. As of February 2020, the follow companies were listed on The DAX.
|Adidas||Beiersdorf AG||Deutsche Boerse||Fresenius ST||Lufthansa||SAP|
|Allianz||Continental||Deutsche Post||Heidelbergcem ent||Merck||Siemens AG|
|Basf||Covestro I||Deutsche Telekom||Henkel VZO||MTU Aero||Volkswagen VZO|
|BMW||Deutsche Bank||Fresenius SE||Linde||RWE AG ST||Wirecard AG|
So now you know that the Dax 30 Index is a stock market that represents the top 30 German companies trading on the Frankfurt Exchange, how it works and things to look out for when trading The Dax for the first time.
What is a Dax 30 Index? The Dax 30 Index is a moving market price that you can trade like a blue-chip stock. The price of the index represents the amalgamated stock prices of the top 30 German companies trading on the Frankfurt ExchangeThe Dax 30 Index, also simply referred to as ‘The Dax’, stands for Deutscher Aktien Index and on spread bet and CFD brokers, the DAX may also be called Germany 30.
The Dax is highly consistent and technical making it ideal for everyone from day-trading scalpers to long term swing traders. As such we recommend that all aspiring traders get to know the Dax and give it a go alongside your other markets. It’s always best to keep a diverse portfolio to spread your risk to the more markets you can learn to competently trade, the more profit you can expect to make.
At Trade Room Plus we have been showing our customers how to trade Forex, Index and Crypto markets on spread bet and CFD broker platforms since 2013 and we offer a comprehensive but accessible way to learn how to trade forex, start day trading, understand when to enter and exit a trade and how to improve your profitability.