If you're interested in trading one of the most widely traded indices around, this article is for you. We will explore the fundamental aspects of the DAX 40, or Deutscher Aktien Index, and guide you on how to get the most out of it! We will talk about its components, trading hours, factors impacting its value, and effective strategies for trading this highly popular German index. By the end of this article, you'll be equipped with valuable insights to capitalize on the opportunities presented by the DAX 40 with ActivTrades. Before we dive right in, let’s have a look at the steps to follow to trade the DAX 40 efficiently.
5 steps to trade the DAX 40 index
- Think about your personality to determine what kind of trader or investor you are, taking into account your risk tolerance, availability, trading capital, financial knowledge and objectives, among other criteria.
- Choose the type of trading style and strategy to use to trade the DAX 40.
- Decide which financial product suits your trading best (CFD, Turbo, Warrant, ETF, futures)
- Determine whether you believe the best option to analyze the markets is technical analysis or fundamental analysis (don’t overlook sentiment analysis)
- Open a long or short position on the DAX 40, depending on your scenario (but remember to always follow your trading plan and risk management rules).
What is the DAX 40 index?
The DAX index tracks the performance of the top 40 companies listed on the Regulated Market of the FWB Frankfurt Stock Exchange, encompassing approximately 80% of the market capitalization of listed stocks in Germany. In addition to being a barometer of the economic health of the German economy, the DAX index is also used as a benchmark for many other financial products, such as other indices included in the DAX family like the MDAX, the SDAX and the TecDAX.
To be included in the index, the shares must satisfy particular benchmarks for quality and profitability. These benchmarks include criteria like timely financial statement publication and positive EBITDA over the last two fiscal years and a legal/operating headquarter in Germany. Additionally, there’s a 10% capping factor to ensure balanced representation.
The index is computed as a performance index, taking into account dividend yields and relying on free float market capitalization. Deutsche Börse Group was the first one to start calculating the value of the DAX index on July 1, 1988, but in September 2019, STOXX Ltd. started administering the German index.
6 reasons to trade the DAX 40 index
- It allows investors to get diversified exposure to one of the most powerful economies in Europe.
- It is one of the most traded European indices.
- Trading the DAX 40 index is a highly liquid and accessible option for traders from all over the world.
- Index trading is a great way to diversify your holdings.
- You can use any type of trading strategy (scalping, day trading, swing trading).
- It is also possible to use any time frames when trading the DAX 40 (1-min chart, 5-min chart, 15-min chart, hourly chart, daily chart, monthly chart).
DAX 40 characteristics
Trading Hours
The DAX 40 is traded on the German Stock Exchange, the Deutsche Boerse, through the index provider STOXX Ltd. of Qontigo from Monday to Friday from 9am to 5:30pm Central European Summer Time (GMT+02:00).
In addition to continuous trading, Xetra also allows intraday auction at the beginning of the trading day (from 8:50am to 9am), between 1pm and 1:02pm, and at the end of the trading day (from 5:30pm to 5:35 pm).
Market holidays
When trading the DAX 40, you should always be aware of market holidays, as these days usually see less liquidity and less trading volume.
Consider the following: Good Friday, Easter Monday, Labor Day, Ascension Day, Whit Monday, Corpus Christi, German Unity Day, Christmas and Boxing Day, and remember that while some holidays will only be observed by German traders, others might be followed by different traders around the world.
DAX 40 Index - Top 5 components (representing almost 40% of the German index)
- SAP SE = 10%
- Siemens = 9.5%
- Allianz = 7.2%
- Airbus = 6.5%
- DT. Telekom = 5.8%
Portfolio analysis of the DAX 40 by sectors breakdown
- Industrial = 21.16%
- Automobile = 12.34%
- Insurance = 12.10%
- Software = 10.02%
- Pharma & Healthcare = 9.41%
- Telecommunication = 5.82%
- Chemicals = 5.13%
- Others = 24.02%
Understanding the DAX 40's portfolio analysis by sectors allows traders to better evaluate and understand sector performance and its impact on the index value. This knowledge helps in tracking market trends and identifying investment opportunities, making it easier to capitalize on potential prospects within the dynamic DAX 40 index.
8 factors that influence the DAX 40
- Growth prospects (both locally and globally).
- Economic statistics (mostly growth, inflation, and job reports).
- Exchange rates with the EUR (especially the EUR/USD rate).
- Monetary policy from the European Central Bank.
- Earnings season.
- War and natural disasters.
- German fiscal and tax policies.
- Global market mood.
Historic prices of the DAX 40 index
Daily DAX 40 Chart - Source: TradingView (the popular platform used by ActivTrades to power its online trading software)
Most popular trading strategies to trade the DAX 40
Scalping and day trading are among the most popular trading styles used to actively trade the DAX 40 over the short-term.
These two types of trading are intra-trading, where you focus on very small price changes. While you will keep your positions open from only a few seconds to a few minutes with scalping, you can hold them up to a few hours with day trading.
Usually, active traders rely on technical analysis to decide when to enter or exit the market.
They can use breakout trading to spot when the German index breaks out above a resistance level or below a support level to open a position and take advantage of the strong price movement.
But they can also use other strategies, such as mean reversion trading, which is used to determine any overbought or oversold conditions that can trigger a price reversal, pushing the index to return to its mean.
News trading is also very popular when trading the DAX 40, such as when economic and geopolitical news that may impact the German economy are published.
If your time horizon is a bit longer than a day, you can also use a trend following strategy to trade in the direction of the primary trend and ride the bullish or bearish momentum.
7 other ways to invest in Germany
- Other German indices.
- Individual German companies in order to get exposure to the German economy (either through blue chips or penny stocks).
- German corporate bonds.
- Sovereign bonds.
- Other financial products such as ETFs.
- Sectoral indices.
- Real estate in Germany.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
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