Trade the DAX Online | FXTRADING.com - International

Trade the DAX Online

Trade the DAX with raw price spreads and fast trade execution

Trade Germany’s premium index with FXTRADING.com via our MT4 platform across multiple devices. Enjoy our sophisticated trading infrastructure with low latency, fast execution trading and tights spreads from our top-tier liquidity providers.

A Primer on the DAX

Locally known as Deutscher Aktienindex, the DAX is Germany’s most famous equity market index and trades on the Frankfurt Stock Exchange.

  • Launched over 20 years ago
  • Include the 30 largest companies in Germany
  • The DAX is a Float-Adjusted Market Capitalisation Index
  • Famous for its volatility
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Launched over 20 years ago
The DAX was officially launched on the 1st of July 1988, over which time it has traded through 8 recessions.

According to owners of the Frankfurt Stock Exchange, Deutsche Börse, the original idea for the DAX came from the German Financial Editor, Frank Meller. This is quite reminiscent of the Dow Jones Industrial Average in the US, which also includes 30 stocks and was also founded by a financial editor. Clearly Frank Muller was inspired by Charles Dow.

Includes the 30 largest companies in Germany
Like the Dow Jones, the DAX includes 30 companies, 17 of which have remained in the index since inception. However, critics have pointed out that it’s not quite the same as the Dow as the DAX contains medium and large companies, so not a true reflection of the broad German economy which is mostly made up of medium-sized companies. Still, it remains a popular benchmark and is regularly quoted in the media.

As of July 2020, the DAX contains the following constituents:

  • SAP SE
  • Linde PLC
  • Siemens AG
  • Allianz SE
  • Volkswagen AG
  • Deutsche Telekom AG
  • Bayer AG
  • Adidas AG
  • BASF SE
  • Deutsche Post AG
  • Daimler AG
  • Bayerische Motoren Werke AG
  • Henkel AG & Co KgaA
  • Muenchener Rueckversicherungs Gesellschaft AG in Muenchen
  • Deutsche Boerse AG
  • Vonovia SE
  • Infineon Technologies AG
  • ON SE
  • Fresenius SE & Co KGaA
  • Beiersdorf AG
  • Fresenius Medical Care AG & Co KGaA
  • RWE AG
  • Deutsche Bank AG
  • Continental AG
  • Merck KGaA
  • Deutsche Wohnen SE
  • HeidelbergCement AG
  • MTU Aero Engines AG
  • Covestro AG
  • Wirecard AG

 

The DAX is a Float-Adjusted Market Capitalisation Index
Like many of its counterparts, the DAX uses a market capitalisation method to weight it. This means that equities with a larger market cap create a bigger impact on DAX price movements. At the time of writing, the top 5 companies in terms of market cap are SAP, Linde, Siemens, Allianz and Volkswagen.

Famous For its Volatility
Experienced traders will tell you that the DAX is a volatile index, which can be a double-edged sword. On one hand, traders need volatility to find opportunities. Yet on the other hand, too much volatility can make it tricky to manage risk. This makes it popular with intraday and breakout traders as it can produce volatile spikes around market open and news releases.

How Can You Trade the DAX Index?

As the DAX is an index and not a tradeable instrument itself, speculators must trade the DAX via a derivate. A CFD (contract for difference) is a form of derivate and available to trade with FXTRADING.com.

CFDs are an ideal way to trade the DAX as they allow traders to speculate on rising and falling markets (go long or short) without owning the underlying market or entering a contract like with a futures market.

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Long example: DAX (DE30)
A trader buys 5 contracts of the DE30 CFD at €12,500

  • If the price rises to 13,000 the trader could exit for a profit around €2,500
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (13,000 – 12,500)
  • If the price falls to 12,000 the trader could exit for a loss around – €2,500
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (12,000 – 12,500)
  • A 1% margin requirement with 100:1 leverage requires €500 of capital
    • (# contracts x contract size x price) / leverage
    • (5 x 1 x 12,500) / 100

 

Short example: DAX (DE30 CFD)
A trader sells 10 contracts of the DE30 CFD at €11,250

  • If the index falls to 10,500 the trader could exit for a profit around €7,500
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (11,250 – 10,500)
  • If the index rises to 11,500 the trader could exit for a loss of around – €2,500
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (11,250 – 11,500)
  • A 1% margin requirement with 100:1 leverage requires €1,125 of capital
    • (# contracts x contract size x price) / leverage
    • (10 x 1 x 11,250) / 100

 

Costs associated With CFDs

Spread:
The spread is a nominal cost to enter the trade which is applied at the point of entry. It is simply the difference between the bid and the ask price (bid – ask) which can be viewed within MT4’s market watch window or the deal ticket.

The spread is a variable rate which is driven by the amount of liquidity available. Typical, we would expect a thinner spread for the DAX when the physical stock exchange is open during the European session, as this is when trading volumes are higher for that market.

In this example, the spread is 1 index point (equivalent to €1).

DE30
Bid / Ask:
12,875.00 / 12,876.00

In the next example, the spread is 2.5 index points (equivalent to €2.50).

DE30
Bid / Ask:
12,875.00 / 12,877.50

Swaps:
At the end of each day, swaps are calculated and applied to open positions. They can either be a credit or a debit to the position, depending on whether the trader is long or short and what the underlying interbank rate it for the market’s currency. As the DAX is traded in euros, swaps are calculated in euros.

To view the swap rates, go MT4’s market watch window, hover over the DAX, right-click and swelect “Specification”.

Market Drivers for the DAX

  • Global Equities
  • European Central Bank (ECB)
  • Economic data
  • Large-cap equities
  • Risk-appetite
  • Earnings Season
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Global Equities
Like most global indices, the DAX shares a strong positive correlation with its piers and their longer-term trends tend to follow one another. In particular, it tracks US and European indices very closely, although other drivers can see the DAX outperform or underperform relative to these tightly correlated markets.

For example, we saw the DAX sell-off in 2018 when markets were concerned that Turkey would default on its loans from European banks and contagion would set in across Europe.

European Central Bank (ECB)
If the ECB is set to stimulate the economy, it can benefit the DAX and send it higher. Conversely, if the ECB are dovish it can weigh on European indices such as the DAX. As there’s been little concern of a hawkish ECB since the GFC over 10 years ago, the DAX has underperformed relative to US indices since 2008.

Economic Data
Macro-economic data such as business sentiment surveys are considered to be a leading indicators for growth. If business sentiment is rising it assumes a rosy outlook for GDP (gross domestic product) and can support equity prices. However, weak business sentiment can weigh on the index as it suggests GDP may also falter in the future.

As with all economic data, its trend needs to be taken into consideration. If we see rising confidence for several months but then a minor contraction occurs, DAX bears might look for short opportunities around the news release itself, but it may not be enough to change a bullish trend. Yet if we were to see a significantly large drop in confidence, it could start a particularly volatile and bearish move for equity prices.

Popular leading indicators DAX traders could follow include German and European PMI’s for manufacturing and services, ZEW Survey and IFO sentiment.

Large-Cap Equities
As mentioned earlier, being a market-cap weighed index then the largest stocks make a greater impact on the Index. Therefore, a prudent analyst could monitor price action on SAP, Linde, Siemens, Allianz and Volkswagen to try and gauge the underlying strength of the DAX.

Risk-Appetite
Risk appetite is a driver of all markets, although it can make a larger mark on risk assets such as indices. If investors are confident about the future, they tend to buy equities which can support stock market indices. Whereas if they fear the future, it can weigh on equities and of course indices.

However, it is better to monitor multiple markets to assess how strong or weak sentiment is. If a minor event were to impact Europe, it may weigh slightly on the DAX. Yet if we were to see global markets fall together due to a large-scale event, we could expect a more volatile bearish move on the DAX. Ultimately the more serious the situation is, the larger the moves we can generally expect and the stronger correlations among markets become.

Earnings Season
As there are only 30 stocks in the DAX, one might think earnings season has less of an impact. Yet earnings from US and the rest of Europe can also impact the DAX. Ultimately, if the majority of companies beat their earnings estimates then it tends to bode well for the indices. And, of course, the opposite is true. If the majority of companies are missing their earnings estimates then it tends to weigh on indices.

Seasonality and the DAX

Some markets such as stock indices display seasonal patterns. As the name implies, the ‘season’ or calendar month can sometimes generate periods of rising or falling prices. Crops in particular are heavily influenced by the weather and it can make drastic changes to supply and demand of the crop and therefor prices.

The drivers for equity markets may be different and less severe than for commodities, but worth noting none the less.

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Monthly-Close Statistics for the DAX:

Between January 1990 and December 2019 (30 years)

  • 9 out of 12 months posted positive average returns
  • April and October had the highest ‘win rate’ (bullish closes) 73.3% of the time
  • October was the most bullish month of the year, averaging 2.66%
  • June, August and September had average negative returns
  • August was the most bearish month of the year, averaging -2.56%
  • September had the lowest ‘win rate’, with 56.7% posting bearish monthly closes

 

Sell in May and Go Away:
This is a well know saying on Wall Street which suggests traders should step aside around May, as equity returns are underwhelming through the summer months. It has also been taken over the years as a reason to sell (go short) the market at May and hold over the summer months. Yet many studies have suggested this is not a great strategy due to posting negative returns on some indices.

However, for the DAX, average returns between 1str April and 31st of August have been negative over the past 30, 15 10 and 5-years. Still, that is not to say it is a sensible strategy as this ignores the underlying volatility of the market over this period and any form of risk management.

Santa’s Rally:
This refers to the tendency for stocks to rise throughout December as we head towards the Christmas holidays. However, like all seasonal patterns, it is simply an average of past performance and therefore not predictive. Still, over the past 30 and 15-years December has posted average positive returns of 1.75% and 1.22% respectively. Yet over the past 10 and 5-years average returns have been negative for December.

Why Trade the DAX?

  • Trade long and short
  • Low margin requirements
  • It’s a volatile instrument popular with intraday traders
  • Can be used as a proxy for risk
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Trade Long and Short
The ability to trade long and short allows traders to apply many strategies, regardless of timeframe or market direction.

Low Margin Requirements
With leverage up to 100:1, margin requirements are very low which makes the DAX accessible to traders of all levels. You can effectively open up a contract on the DAX for 100th of the official price in euros.

It’s a Volatile Instrument Popular with Intraday Traders
The DAX is loved by intraday traders due to its volatility. Trading the market open and seeking breakouts are a popular approach. However, it is also prone to gaps between sessions on the underlying index, so traders who want to hold for longer periods need to account for this in their risk management parameters.

The DAX Can Be Used as a Proxy for Risk
Risk-sentiment is at the heart of market direction and speculating on indices such as the DAX provides a pure way of trading that common theme. Whether it is a global rout or European-driven sentiment, it has the potential to move the DAX and where there’s movement, there can also be opportunity.

Why Trade the DAX with FXTRADING.com?

  • Competitive Spreads
  • Trade the DAX around the clock
  • Unrestricted trading environment
  • Generous levels of leverage
  • Multiple Deposit Options
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Competitive Spreads
FXTRADING.com pride themselves on their fast execution service and tight spreads, which can only be made possible with our top-tier liquidity providers.   

Trade the DAX Index Around the Clock
The official stock exchange for the DAX operates between 9:00am and 5:30pm local time (Germany), yet with our DE30 CFD traders can open and close orders over 20 hours a day, 5 days a week.

Unrestricted Trading Environment
Our trading environment welcomes all styles of traders, whether they be scalpers, high-frequency or EA (automated) traders.

Generous Levels of Leverage
FXTRADING.com offer leverage of up to 100:1. High leverage does not have to be a bad thing. It effectively reduces your margin requirements, which allow traders to better diversify themselves and keep further away from a margin call.

Multiple Deposit Options
We are a global company ad with that is the requirement to accept multiple currencies via popular payment methods such as Neteller, Skrill, Poli and bank transfer or wire.

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