leading stock index in Germany enjoys worldwide popularity. It can be used to analyze the performance of European stock exchanges.
Read on to learn more about the DAX 40 and how to trade the index.
What is the DAX 40?
The Deutschland 40 (DAX) share index was established in 1988 and comprises the top forty blue chip companies traded on one of Germany’s largest stock exchanges, the Frankfurt Stock Exchange (FWB).
A blue chip company is one that is established and stable. A blue chip can be considered a relatively safe and profitable investment.
To be included in the Dax 40, a company must meet the following criteria:
Must be listed on the FWB
At least 10% of the shares are publicly traded and are not restricted
Must have a place of business in Germany
The quarterly and/or annual reports are published in good time
Originally, the DAX stock index consisted of 30 companies, but on September 3, 2021 it was expanded to 40 companies.
The companies that make up this index span a wide range of stock sectors. These include, for example, pharmaceutical companies, financial services, manufacturers and insurance companies.
The DAX 40 includes the largest German companies, but there is also an index for medium-sized German companies called the MDAX. For the smallest companies there is also the SDAX. They are all operated by Deutsche Börse Group.
Understand the DAX 40
The DAX 40 is also used by investors as a point of reference for the general economic situation in Germany. In addition, this index offers the opportunity to invest in one of the most popular indices in the world using contracts for difference (CFDs) or options.
The value of the DAX 40 is calculated by comparing the market capitalization of the companies in the index with their average trading volume. Only the company’s liquid shares that are offered for sale or purchase in the market are included.
Investors use this calculation to analyze the price development of the DAX 40.
The system for calculating the value of the DAX 40 (Xetra) determines the price every second, which makes it an extremely accurate index.
What causes the price movements in the DAX 40?
The development of the DAX stock index offers a snapshot of the trading activity of all 40 companies that are part of the index on the respective day.
However, the market value of each company is weighted. This means that neither a company’s shares nor their price developments have a major impact on the entire DAX, measured by the size of the market capitalization. For more information visit greetingsus.
All 40 companies can greatly influence the valuation of the listing.
At the end of the trading day, the value of the companies included is entered into a fixed formula in order to get an overall picture of the daily movement of the DAX 40.
Some stock prices of certain companies may have risen during the day while others have fallen.
The rise or fall of the index is determined by a collective final digit of these calculations.
How to trade the DAX 40
There are several ways to trade the DAX index. Some are more complicated than others, or better suited to personal trading style.
For example, you can trade the shares of any company in the DAX 40. However, this is a very time-consuming process. Every business must be carefully monitored.
You can also work with a broker that offers mutual funds or exchange-traded funds. These also include the shares of the DAX 40. These would work on the same principle as the index, based on the weighted values.
Another option is to trade contracts for difference (CFDs) on the DAX index. This allows you to trade indices without having to buy the underlying assets.
Index CFDs allow you to enter into a contract based on the price movement of the index. Both profit and loss are based on the price difference between opening and closing the position.
Compared to mutual funds and exchange traded funds (ETFs), CFDs can usually be traded much faster. This means that the effects of slippage can also be less far-reaching.