How to use the DAX 40 index for trading
The German DAX 40 index (Deutsche AktienindeX) comprises the shares of 40 companies, known as blue chips, listed on the Frankfurt Stock Exchange. To calculate the index, the share prices of the individual companies are used, taking into account their weighted average capitalisation.
Deutsche Börse launched the DAX in 1988. Since then, it has become the key index for the German equity market. Initially, it included 30 of the country’s largest companies. In 2021, however, the list grew to 40 companies. In that time, its size has increased 13-fold.
Features of the DAX 40 index
The composition of the companies in the indicator is regularly subject to review. This takes place every year in September. It is worth noting that the index not only has a direct impact on the German stock market but also plays a vital role in the European Union as a whole. The DAX 40 includes companies that account for around 80% of the total market capitalisation of companies listed on the stock exchange.
The index is the German equivalent of the Dow Jones Industrial Average on the New York Stock Exchange. Like the DAX 40, it includes the most important companies in the economy. The German index helps determine more than 150,000 financial products, including ETFs.
How to trade the DAX 40 index
This stock index trading involves opening and closing positions for both buying and selling. In this case, it is possible to carry out operations to increase or decrease quotations through Contracts for Difference or CFDs. The profit comes from the price fluctuations from the entry point of the trade. In addition, the DAX 40 allows the use of futures contracts suitable for hedging and speculative strategies.
Periodically, the index reaches new highs, and this happens quite often. When quotes rise rapidly, it means that investors are interested in the trading instrument.
Advantages of the index:
1. Growth potential. The index includes the country’s largest companies, whose activities determine the development of the economy. If the economy is growing, the DAX 40 will rise. There is also a regular review of company indicators. If a company is underperforming, it is replaced by a more promising company. In this way, the index always contains the best representatives of the market.
2. The stock index allows you to diversify your portfolio because it includes companies from different market segments. Therefore, a crisis in one sector will coincide with growth in another, and the trader will not suffer losses.
Due to its volatility, the DAX 40 allows you to trade using both short-term and long-term strategies. In addition, the index analysis requires considering a few factors, making it easier to work with.