The German stock index, representing 30 of the largest German companies that trade on the Frankfurt Exchange. It is the German equivalent to the Dow Jones Industrial Average.
In order to describe the general condition of an economy and to compare returns among different investments, investors and economists often use a country’s stock index as a benchmark. Stock indices include selected stocks, usually based on market cap, and their value is typically computed as a weighted average of the stocks’ prices.
When the economy is doing well and stocks start to rise, a stock index that tracks those stocks will also rise. Similarly, a sell-off in the stock market will also trigger a fall in the stock index. In this article, we’ll cover the German DAX index, explain which stocks are included and how to trade the index.
What is the DAX?
The DAX is short for German Stock Index, or Deutscher Aktienindex in German. It consists of the 30 largest German companies by market capitalization and order book value, which are also included in the Prime Standard’s segment of the Frankfurt Stock Exchange. In terms of the number of stocks it tracks, DAX 30 is similar to the FTSE 30 and Dow Jones 30 stock indices. On the other side, FTSE 100 and S&P 500 are much broader indices, tracking 100 UK stocks and 500 US stocks, respectively.
The Xetra trading venue, operated by Deutsche Börse, provides prices of the selected stocks included in the DAX index, and calculates the index’s value every 1 second. The individual share of each component in the index is calculated on a capitalization-weighted basis, making the DAX a weighted index. This means, companies with a higher market value of their outstanding stocks also have a higher share in the DAX index.
The DAX index started from a base value of 1,000, with a base date of 30 December, 1987, and reached a record high of 13,559 points on January 23, 2018.
Companies Included in the DAX
The DAX index includes the 30 largest German companies trading on the Frankfurt Stock Exchange. As of July 2018, the five companies with the largest index weighting include SAP (index weighting: 10.56%), Siemens (9.34%), Bayer (8.27%), BASF (7.98%), and Allianz (7.81%). Well-known German automakers, Daimler and Volkswagen, are positioned on the 6th and 10th place, respectively.
Since stock prices change daily, you can find updated index weightings on the DAX website (www.dax-indices.com).
Futures and Options on the DAX Index
Traders and investors can also trade on options and futures on the DAX Index. A Zurich-based European electronic futures and options exchange, Eurex, offers both DAX options (ODAX) and DAX futures (FDAX). Traders can choose between two types of futures contracts: the FDAX carries EUR 25 per each point of the index, while the FDXM – also known as FDAX mini – trades at EUR 5 per point.
How to Trade the DAX?
Trading the DAX 30 is quite similar to trading other stock indices, such as the FTSE 30 or DJ 30. Traders should follow the general state of the German economy and news related to companies that are included in the index.
You can find regular updates on all listed companies that trade on the Frankfurt Stock Exchange and are included in the DAX on the following websites: www.dax-indices.com and http://en.boerse-frankfurt.de.
Another way to gain exposure to the DAX is by trading CFDs. Contracts for Difference track the price of their underlying asset, in this case the DAX index, allowing traders with long positions to make a profit when prices rise. With CFDs, you can also profit from falling prices of German stocks by “shorting” the DAX.