The DAX 30 is the key benchmark for the German stock market, and is the most popular index to trade in Europe and considered one of the top indices in the world. The German economy is the largest in Europe, and one of the largest globally, and thereby making the DAX 30 an important global stock market barometer. The index is made up of 30 blue chip stocks which trade on the Frankfurt Stock Exchange. The DAX 30 is made up of companies with heavy exposure to the global economy and is weighted by market capitalization; which provides the heaviest weightings to the largest companies. The German index began trading in 1987 at a base value of 1,000.
How to trade the DAX 30
The DAX 30 futures contract trades on the Eurex. The exchange code is “FDAX”. The notional contract value is determined by multiplying the current index value x €25 (i.e. 10,000 x €25 = 250,000). Futures can allow a trader to use a large amount of leverage, so understanding the leverage behind a position is important.
One of the drawbacks is the large margin requirements, which is why a smaller contract has been created. Like the popular and liquid US index futures contracts, the DAX also has a smaller ‘e-mini’ contract available under the exchange code, “FDXM”. It has a multiplier of €5, or 1/5 the size of the full-sized contract. (Notional contract value = €5 x current price of the DAX). These are attractive due to the requirement for less margin and ability to adjust larger position sizes more precisely.
There are four main expiration months – March, June, September, and December.
Exchange Traded Fund (ETF)
The DAX 30 can also be traded via the iShares Core DAX UCITS ETF (DE), ticker symbol – EXS1 – and trades in Frankfurt. It is designed to mimic the price movements of the DAX index. It is an effective way to trade the German index due to its low expense ratio, availability to investors of all size, and liquidity.
Options are available for both futures and the ETF. It is suggested that one familiarize themselves with how options work before trading them. This is one of the least capital intensive ways to trade the DAX 30, as options premiums can be as low as a few euros per contract. Traders can use options as a hedge or to speculate on the direction of the index, both up and down.
Contract for Difference (CFD)
This instrument was designed with the small trader or investor in mind. CFDs are constructed with futures contracts, but made into smaller contracts which require significantly less margin than futures contracts. Just like futures, these trade nearly 24-hours a day, 5-days a week. Most traders in the world outside of the United States have access to a broker who offers CFDs. These can be traded in both directions, long and short.
What impacts the DAX 30?
The Eurozone and global economic conditions weigh significantly on this index as it has such large international exposure. As Europe’s largest economy, not only how the economy is faring in Germany matters, but in the Eurozone as a whole. The interconnectedness of the global economy makes Germany reliant on strong trading partners for healthy economic growth.
Central Bank activity impacts the German economy and stock market as it does in other developed countries. Changes in monetary policy by the European Central Bank (ECB) (i.e. interest rate changes, quantitative easing) have an impact on investor sentiment and market performance.
The DAX 30 is concentrated on a few large constituents. It is important to understand what constituents will move the index given the heavy weighting placed on a small number of the 30 stocks in the index. The top 10 names make up nearly 60% of the entire index (August 2016).
Real-Time Indices Futures