DAX Index - overview and methods of working with the main German index

DAX

index is one of the main stock indices of the European Union; DAX quotes are calculated based on the prices of the 30 largest blue chips in Germany.
The German economy is considered the locomotive of the European Union, so the DAX is more than a local index, it characterizes the state of affairs in the EU as a whole. Dax is also one of the most popular instruments among traders (meaning derivatives trading), and its basket is used as a benchmark for a number of ETFs. From this article you will learn:

1. General information about the DAX Index
2. DAX Index Composition
3. DAX calculation method
4. Revision of DAX basket composition
5. Existing DAX sub-indices
6. How to make money on the DAX index
7. What influences the behavior of the DAX index
8. Conclusion

General information about the DAX Index

The formal launch date of the DAX (aka Ger 30) is considered to be July 1, 1988 , but quotes were calculated earlier. Dax became a logical continuation and development of the previously calculated Börsen-Zeitung Index. It replaced the previously popular trio of Börsen-Zeitung, ASB and Hardy-Index. The base value of Dax was set at 1000 points as of December 30, 1987.

If we consider the Borsen-Zeitung as the predecessor of Dax, then we can say that the calculation has been going on since 1937. Before the Second World War, the Nazi regime completed the modernization of the German manufacturing sector.

If we use the current methodology and recalculate the index value, it turns out that at the end of 1937 its value was 56.89. In post-war 1948 the value dropped to 12.43. Then a smooth recovery began and just before the launch of Dax, quotes reached 1432.25 points.

The DAX index is calculated based on the prices of 30 German blue chips . These are the largest and most liquid companies whose securities are traded on the Frankfurt Stock Exchange in the Prime Standard segment. Dax's capitalization covers about 80% of the capitalization of all German companies listed on the Frankfurt Stock Exchange.

DAX 30 is popular among traders. Thus, according to Eurex data for 2018, the trading turnover of futures contracts amounted to 37 million, options – 28.9 million.

Two versions are calculated:

• Taking into account the investment of dividends received . The Total Return version is useful for those who want to have an idea of ​​the potential of investing in Dax, taking into account the full reinvestment of dividends.
• Performance – dividends are not taken into account . This subtype is useful in assessing the growth of the German economy. The correlation between both types of DAX is 100%, but the numerical values ​​are different.

How to make money from rising prices?

DAX indicators are the basis for 15,000 financial products, including futures and options. I'll focus on ETFs, and here's why:

• The DAX contains the top 30 blue chips.
• ETFs replicate an index.
• Copying Dax in your portfolio yourself is time-consuming and expensive.

In 2022, Vanguard launched a new fund, the DAX UCITS ETF, to celebrate the index's anniversary. But you can only cooperate with him through a foreign broker. A total of 9 types of DAX ETFs are available for purchase in different funds.

If you contact a Russian broker or its subsidiary, they will do the same thing: they will buy securities for you from an American or European broker. Sometimes foreign companies act as sub-brokers: these details need to be clarified.

The disadvantage of such a long chain is that insurance from the broker’s country in this case is minimal. There are other points to pay attention to:

• Does the broker charge a fee for inactivity on the exchange?
• What is the commission (in percentage and dollars) for ETF trades.
• How much does it cost to withdraw funds?

In the end, the best broker is the one who:

• Not registered offshore.
• Provides 24/7 support.
• Insures investors' deposits.

And it works, of course, with utmost transparency. Therefore, the best option would be to buy ETFs on the DAX from one of the foreign brokers: IB, Saxobank or Exante.

Interactive Brokers CapTrader Exante Just2Trade

In fact, the only real major American broker who still works with Russians.

Pros:

1. There is support in Russian
2. Good commissions
3. The deposit can be replenished with rubles (bypassing currency control)

The disadvantages include:

• Minimum deposit $10,000
• Inactivity fee

Read the review for the full set of working conditions.

German IB introducing broker for direct access to foreign markets. This is where my investment portfolio is located.

Pros:

1. works with Russians
2. Availability of a Russian-language version of the site
3. reasonable commissions
4. no fee for inactivity
5. insurance under US law for $500k

The disadvantages include:

• Support exclusively in English and German
• The support service itself is poor

For a detailed review, see this post.

Another interesting broker for going abroad, and not from the IB family. Unfortunately, contracts are opened for Russians only in Cyprus.

Pros:

1. Acceptable commissions
2. The fact of successful verification of work by the SEC
3. Russian-language website and support

On the downside:

• Cyprus jurisdiction
• Inactivity fee

Read a detailed review here. You can get a $500 bonus when opening an account here.

The company is an American subsidiary of Finam and was created to bring clients from the CIS to the American market.

Pros:

1. The easiest way to open an account
2. Russian-language support
3. Opening an account from $200

Minuses:

• Quite high commissions
• Various additional payments

Read the fullest review here.

A Caution for Beginning Investors and Traders

And now about options and futures. You cannot trade them by simply installing the application through some website. What is being advertised on social media is not real securities, but a predatory gambling game.

The Forex currency market also has nothing to do with the stock market. This is a virtual environment that only imitates real trading. Urgent binary options also exist only in the imagination of scammers; they cannot be bought at all on the exchange.

Options and futures are contracts that fix the price or its range for an underlying asset (share). These are financial risk management tools for serious investors. They usually live only three months and are often used for speculation.

Here I remember a quote from Mark Twain:

“You should refrain from speculating on the stock exchange in two cases: if you do not have funds, and if you do have them.”

Technical analysis is just about this. It’s ridiculous to think that a complete market analysis can be provided by some algorithm. Has anyone made money like this on the stock market? Yes. They say you can win at roulette, but you can never get rich.

“What about fundamental analysis?” - you ask. Why is he better? It’s either be an economist or an investor. If you are not professionally engaged in studying economic theory, then save your money.

I only write about methods that bring real profit in the long term.

By the way, about this. Those who invested one thousand euros in the DAX30 portfolio in 1988 now have seven thousand euros: that is its return. The largest fund by volume, iShares Core, has returned 8.51% to DAX UCITS ETF holders over the past 5 years.

DAX Index Composition

Until September 2022, the German stock exchange index includes 30 shares of the largest companies listed on the main trading platform in Germany. There is no obvious bias towards one of the sectors; about 70-75% falls on 7 sectors of the economy:

• The chemical industry is in the lead, accounting for about 16% at the time of writing.
• Insurance and software development account for 10.8% and 10.5% respectively.
• About 10% comes from the healthcare and pharmaceutical sectors.
• The heavy industry and automotive sector contributes 18.56% of the basket.
• The financial industry accounts for 7.44%.

As for specific companies, the top ten looks like this:

• Adidas . A company engaged in the production of sportswear and footwear. It is the largest clothing manufacturer in the EU.
• BMW _ There is no need to explain here, everyone knows this automotive giant.
• Merck . Medical and pharmaceutical company.
• BASF . The largest chemical company in the world. Produces more than 7 thousand different chemical products.
• Linde plc . This is an American-German pharmaceutical company; its shares account for 10.7% in the Dax basket.
• SAP SE . Works in the field of software development for business needs, SAP shares account for 10.5%.
• Siemens AG . A German conglomerate, a brand with recognition throughout the world. He does not concentrate on one area; he works in the development of electronics, electrical engineering, medical equipment and other areas. Siemens accounts for 8.6%.
• Allianz SE . German insurance company, operating since 1890, share in the basket – 7.4%.
• Bayer AG . Chemical and pharmaceutical corporation headquartered in Leverkusen. It closes the top five with a share of 5.4%.
• Deutsche Bank . One of the largest banks in Europe.

The full list of 30 companies is in the picture below.

List of companies in the DAX index

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A major reorganization of the index is planned for the fall of 2022. The basket will expand and from September 2022 will include not 30, but 40 components, and changes will also be made to the rules for selecting shares for inclusion in the basket. We'll talk about the rules for revising your cart later.

List of participants

A large percentage of participants come from the automotive industry. Germany is famous for its automobile industry, and companies such as BMW, Daimler and Volkswagen Group are clear proof of this.

The leaders of the index in recent years are Bayer and Siemens, participants in the chemical and technology industries. Bayer is a leading pharmaceutical manufacturer in Germany and a number of European countries. Siemens is not only a manufacturer of mobile phones.

The structure of the concern includes a lot of subsidiaries in various fields, from wind power generation to railway cars and locomotives. The list of the most active stocks is presented above. The full composition of the index is as follows:

• Adidas • Allianz • BASF • Bayer
• Beiersdorf, BMW, Commerzbank, Continental
• Daimler, Deutsche Bank, Deutsche Börse, Deutsche Post
• Deutsche Telekom, E.ON, Fresenius, Fresenius Medical Care
• HeidelbergCement, Henkel, Infineon, K+S
• Linde, Lufthansa, Merck KGaA, Munich Re
• RWE, SAP
• Siemens, ThyssenKrupp, Volkswagen, Vonovia.

DAX calculation method

Quotes are recalculated every second using the DAX formula:

in this dependence the following notations are used:

• CT – correction factor.
• рit – the value of a specific security at time t.
• ffiT is the free-float indicator for shares of the i-th company at time T. Shows how many securities are in free circulation.
• qiT – how many securities of the i-th company exist in period T. By time T we mean the last revision of the basket composition, this happens on the third Friday of March, June, September and December.
• cit is another correction factor.
• pi0 is the cost of the i-th share on the day before its inclusion in the Dax basket.
• Base – the value of the DAX index at the time of calculation.

As for the calculations themselves, quotes are updated in real time. Share prices are taken from the Frankfurt Stock Exchange via the Xetra system.

Calculation begins from the moment quotes for shares included in the Dax basket become available, the latest time for settlement to begin is 09:06 local time. If quotes are not available at the start of the Frankfurt Stock Exchange, then the closing prices of the previous trading session are taken. Quotes are updated at a frequency of 1 time per second.

When calculating, quotes must be received for all shares included in the basket. For other indices, relaxations are possible; the table below shows the minimum number of shares for which other indices can be calculated.

Outside trading hours Xetra STOXX Ltd. calculates the so-called early and late versions of Dax. Recalculation is carried out every 60 seconds according to the prices of the corresponding shares on Börse Frankfurt.

Cost and dynamics for all time

The key economic moments that Dax caught were:

• The emergence of the Internet.
• The tragedy of September 11.
• Crisis of 2008.

In response to all these events, the index behaved in the same way as other economic indicators: first it fell, then it grew.

4 major DAX30 records

1. In 2002, the DAX collapsed by 44%: it was the culmination of a crisis that began with the terrorist attack in New York. That year the euro was worth the same as the dollar.
2. On March 16, 2005, the DAX reached 12,000 points for the first time, the euro rose 1.5 times over the dollar.
3. On October 13, 2008, the index showed an increase of 11.4% after banks received Merkel's €470 billion anti-crisis package.
4. In January 2022, the Dax rose to an all-time high of 13.596 points thanks to the rise of the euro.

Revision of DAX basket composition

The index is reviewed regularly and no company is guaranteed a place in the basket. If performance deteriorates, shares may be excluded from calculations.

At the time of preparation of the review, the following criteria must be met:

• The shares must be traded on the Frankfurt Stock Exchange in the so-called Prime Standard segment. The shares must be traded on Xetra.
• The minimum free-float indicator should be from 10%.
• Either the headquarters or the operating office must be located in Germany.
• An annual report that complies with the WpHG requirements must be submitted within 90 days after the end of the reporting period . Semi-annual reports and quarterly reports for at least the 1st and 3rd quarters must also be published.
• Foreign businesses must have their headquarters in Germany . The exception is foreign companies whose shares are actively traded on the Frankfurt Stock Exchange. For them, relaxations are allowed; the headquarters can be located in any EU country or a country belonging to the European Free Trade Association. For at least a year before inclusion in the DAX, the Frankfurt trading floor must account for at least 33% of total trading turnover.

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The committee responsible for reviewing the composition of the basket draws up a so-called shortlist of companies from which new Dax components can be selected. Until September 2022, this list is built on the basis of free-float capitalization and trading turnover of shares. The higher these indicators are, the higher the position of the stock in the short list. For the current edition of Dax, the list includes 45 companies.

When adjusting your cart, the following rules apply:

• Fast Exit occurs if the company's position falls below 45th place.
• Fast Entry is provided provided that the position has improved and the stock has ranked above 25th.
• As for the standard procedure for delisting from the DAX basket, this requires that the company be ranked 40th or lower in the ranking and there is a better option to replace it.
• For securities to be included in the basket as standard, they must rank 30th or higher in the ranking, while the index must include companies with a position below 35th.

The basket is reviewed every third Friday in March, June, September and December.

DAX 30 reform

At the end of November 2022, a message appeared on qontigo.com announcing significant changes to the Dax index. Improvements relate to the formation of a rating of shares, from which new components of the basket are then selected, and the number of shares included in the Dax.

Key changes:

• The composition is expanded from 30 to 40 shares . This innovation will come into force in September 2022.
• From December 2022, a new filter on EBITDA (earnings excluding depreciation and amortization and taxes) will be introduced. All Dax applicants must meet EBITDA requirements for 2 years prior to company consideration.
• The requirement to join the Prime Standard section is waived.
• Since March 2022, a requirement has been introduced for the mandatory publication of annual and quarterly reports (the documentation is verified by an independent auditor).
• From 2022, the revision of the basket composition is reduced to 2 times a year.
• When constructing a shortlist, from which candidates for inclusion in the basket are then selected, only capitalization will be taken into account. Trading turnover on the stock exchange is no longer taken into account.

As for the calculation methodology, it does not change. The same formula is used.

Forecast, analytics and prospects

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The financial market speaks for me: DAX30 has become the basis for many financial instruments (mutual funds, ETFs, futures, options...). This indicates the reliability and accuracy of the indicator.

The index includes the most liquid companies. Among them, Deutsche Bank is experiencing a crisis; analysts see its future in gloomy tones. But this doesn’t matter: the rest of the top 30 corporations are successfully developing and keeping up with the times. For example, Adidas and Bayer are increasing their influence and have yet to have any major failures.

There is currently no news about a trade war between China and the United States, so the indicator regularly closes trading days with an increase of a hundred points. The conflict itself is in limbo and no one undertakes to make a forecast.

Right now, amid sanctions, the price of important exchange assets has fallen: copper and aluminum. Therefore, the German economy and the DAX are weaker today than they could be. As soon as China returns to purchasing raw materials, the situation will stabilize.

In May, everyone reported their successes to the press. As a result, the index showed growth: 30 German companies exceeded the expectations of German investors, thereby increasing demand for their shares.

The DAX gained even more points when the US Federal Reserve announced GDP growth of 2% and an increase in interest rates. This happened on July 18, 2018. If nothing changes, the index will continue to grow by 0.1-0.5%.

Sanctions, the US economy and earnings season also affected other stock indices. Since this effect was the same as on the DAX30, we can once again draw a conclusion about the accuracy of the indicator.

Existing DAX sub-indices

Dax Index

- one of the main ones, in addition to it there are local, more highly specialized tools. These include:

• MDAX – representatives of the technology sector are excluded from the composition. MDAX is focused on medium-capitalization businesses; while Dax includes the 30 largest German companies by capitalization, MDAX includes the next 50.
• SDAX is aimed at small businesses. The next 50 companies after MDAX are taken into account.
• HDAX – it includes all companies included in Dax, MDAX, TecDAX. In total, the basket includes more than 100 of the largest German companies.
• TecDAX – The prefix “Tec” indicates that the focus is on the technology sector.
• ÖkoDAX – acts as a barometer for the renewable energy sector; the basket includes relevant shares.
• CDAX is the “broadest” German index, calculated taking into account the quotes of all German companies that are listed on stock exchanges.

In terms of popularity among traders and investors, DAX leads by a wide margin.

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Calculation method

The value of the DAX is that its formula takes dividends into account. The funds reinvest dividends into the purchase of new shares - and the indicator includes this in the issuer's capitalization.

The DAX formulas themselves are complex, but are similar to the S&P500 in that they summarize companies' share prices as a weighted average. The same system, in a simplified form, is used to calculate grades at school - the result is more accurate than with a simple average.

The divisor has a coefficient that is affected by the euro exchange rate. To calculate the coefficient there is another equation, even more complex:

The formula takes into account all the little things. It has become the basis for the research of other analysts and is regularly improved.

What influences the behavior of the DAX index

DAX 30 quotes are influenced by a whole range of factors:

• The state of the German economy and the EU economy as a whole.
• Actions of Deutsche Bank, monetary policy of the ECB and the Federal Reserve.
• International high-profile events . Corporations that are part of Dax do business not only in Germany and Europe, but also in the USA and other countries of the world. Even local crises can affect German blue chips, which will also affect DAX quotes. The global crisis is also guaranteed to affect the behavior of the main German index. A good example is the coronavirus pandemic and the collapse of all stock indices in the world.

Another feature of working with DAX is the ability to use it as a leading indicator for the US stock market. Many companies included in the DAX basket are also listed on American exchanges; trading in Europe starts earlier, so the behavior of the DAX can be used to predict the behavior of, for example, the S&P 500. If the German index has fallen significantly, most likely its American counterpart will repeat this movement.

New German role

Germany occupies, perhaps, the leading political role in modern Europe.
After the UK leaves the EU, it is the Germans who are able to monopolize EU policy in their favor. Especially in light of some weakness shown by France, as well as the obvious problems of Spain and Italy. Thus, Germany is able not only to increase its own volumes of political intervention, but also economic. Today, the economic situation of Germany leaves its European partners far behind.

Thanks to a competent financial policy, as well as its growing role, Germany not only increases its own achievements, but also attracts foreign investors from the USA, Japan, Russia and other countries.