How to trade and invest in the Dax 30

What is the Dax 30 and how can you trade and invest in it?

The Dax 30 index (Deutscher Aktien Index or German stock exchange in English) is an equity index which tracks the performance of 30 of Germany’s leading stocks. These companies represent as much as 80% of the market cap, of the top tier, in German equity markets. The Dax or Germany 30 as its sometimes known was officially launched back in 1988 with an initial base value of 1000 index points, the index has risen substantially since then and touched an all-time high of 13596 in 2018, the low point of the index was a value of 936 back in 1988. The maximum value fo the Dax 30 index being €971.8 billion (Feb 28, 2017) & GBP £885.1 billion.

Best brokers for trading the Dax

This very much depends on what you are looking for from your broker, if it’s 24-hour pricing and tight spreads, plus access to thousands of other products. Then you will probably want to trade with one of the larger brokers such as IG Group or Saxo Bank. However, if you want a more personalised service, then you might prefer a smaller broker such as Spreadex.

Your choice of broker will also be influenced by the products you want to trade.

For example, if you’re going to Spread bet rather than trade CFDs. Then, you ‘ll need to choose from those providers that operate as Financial bookmakers (spread betting brokers) as well as CFD brokers.

You can compare brokers and decide which one is the best fit for you by using our comparison tables, for Trading accounts click here and for Spread betting click here or if you are interested in investing through ETFs use this link. However, why not read the rest of the article before you do.

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Dax 30 futures explained

Futures contracts are a form of derivative, through which traders can speculate on the future price of a commodity or financial instrument, in this case, the future value of the Dax 30 index.

Dax futures trade quarterly in a December, March, June and September cycle, and each contract reflects the market’s expectations for the value of the Dax out to that point in time.

These contracts are traded on a rolling basis and as the front-month contract expires, so another contract is added to the end of the sequence to replace it.

Dax 30 futures are cash-settled meaning that buyers and sellers of the contract pay or receive money depending on the outcome of their trade as such there is no need to undertake or accept delivery of the stocks that make up the index.

Trades are cleared and settled through the clearing house that acts as the counterparty to all Dax futures trades. Futures trades are undertaken on margin. Traders place an initial margin or deposit at the inception of the trade and add variation or maintenance margin, as and when required, throughout the trades lifetime.

Dax 30 CFD trading explained

All contracts that are settled in cash are considered to be Contracts For Differences. Under which, the buyer and the seller are either credited or debited, at the settlement of their trade, based on their PnL performance, instead of making or taking delivery of the underlying asset.

A CFD on the Dax index works in precisely the same way, CFDs on the Dax are similar to the futures contracts we discussed above, though there are some key distinctions.

CFD contracts on the DAX trade off-exchange in what is called OTC or Over The Counter trading. Such CFD contracts are not settled through a dedicated clearing-house that means the counterparties to a trade are the customer and their CFD provider or broker.

Trading off-exchange or OTC allows for a higher degree of flexibility, for‌ ‌example, there are no fixed expiry dates for Dax CFDs or indeed fixed contract sizes, though there will be minimum trade sizes.

Futures contracts on the Dax have a contract size of €25 per point so that if the Dax index stands at 10,000 points one full Dax futures contract has an underlying value of €250,000.

Dax CFD traders can usually deal in much smaller sizes, for example, in say €5.00 per index point, which is equivalent to one-fifth of the value of the exchange-traded futures contract.

Dax 30 Spread betting explained

A spread bet on the Dax index shares features with both the futures contract and Dax CFDs. However, there is a difference between the spread bet and the other two, and it’s an important one.  The difference is that the spread bet is structured as a bet and not a trade.

When you Spread bet, you bet in pounds or pennies per point (or units of another currency), and you bet on the rise or fall of the Dax index, and your bookmaker is the counterparty to the bet.

Bookmakers offer their clients a range of bets with different life cycles, for example, daily, monthly or quarterly bets.

However, the crucial difference between a spread bet on the Dax and CFD trades on the index is how any profits you make are taxed. Under current UK legislation profits made from betting by individual UK taxpayers are not subject to tax. However, losses arising from spread betting are not able to be offset against capital gains made elsewhere.

Profits arising from CFD trades are subject to tax, though CFD trading losses can be offset against capital gains made elsewhere.

That tax treatment has made spread betting very popular among UK retail traders, however, you should note that as opposed to fixed-odds betting the potential losses in spread betting are not limited to your initial stake.

Dax 30 ETFs explained

ETFs or Exchange Traded Funds are open-ended funds designed to mirror the performance of a given index, a sector or even an investment strategy.

Most ETFs are what are known as passive investments that track a given benchmark rather than attempting to outperform it. ETFs can be traded just like individual shares; they have proved popular among investors as they offer a low-cost replication of an index or sector’s performance. Added to which they allow traders to quickly gain exposure to groups of stocks or asset allocation themes.

The ETFs on the Dax 30, aim to mirror its performance and they are likely to own a basket of Dax constituent shares, or a series of derivative contracts over those, or similar assets, to do so.

If you’re optimistic or bullish about the Dax then you would buy a Dax ETF, if you’re are pessimistic or bearish about the prospects for the index then would sell a Dax ETF.

ETFs can be shorted, that is selling something without owning it first, in the hopes of repurchasing the position, at a lower price, to make a profit at a later stage. It would be wise to check with your broker to find out if there are any restrictions on this before doing so, however.

There are many ETFs tracking the Dax index, one of the largest is the Core DAX UCITS ETF, managed by Blackrock, through its iShares division. This ETF was established back in December 2000, and according to recent data from the manager, it has captured cumulative returns of more than +85% since then.

Where to get live streaming Dax 30 charts

The trading platforms of most brokers offer users a Dax chart. However, you might want to consider an additional provision, and there are various resources available to do just this.

Google is an excellent place to start if you are just looking for a simple overview.

To access a Dax chart copy and paste the ticker INDEXDB: DAX into the google search bar and hit return or click here.

You can plot line charts that range from current-day performance out to five years or more. You can also find Dax related news items and make comparisons between the Dax and other instruments.

Yahoo finance goes a stage further in its Dax coverage, showing you not only the changes in the index itself but also the prices of the component companies that comprise the equity benchmark. There are interactive charts that cover time frames from as low as one minute, and you can draw on or annotate these charts as well. What’s more, you can download the historical end of day data if you prefer to crunch the numbers for yourself.

Other useful sources for Dax charts include TradingView as well as the Markets Insider and Marketwatch websites.

What is Dax 30 day trading & swing trading?

Swing trading is a trading style that works by spotting the beginning or end of a trend within the price action of an index or other instruments, in this case, the Dax 30 index and its derivatives.

Swing trading is often used as a day trading style without overnight positions. However, some swing traders do run positions for more than a single trading day, if the momentum in the trends they are trading justifies it.

The Dax swing trader looks for signals in the indices price action that can provide clues about what the next medium-term move in the index will be.

For example, if we see a series of higher highs and higher lows, on both the five and fifteen-minute charts, that appear soon after a period of consolidation, then that could suggest there is new upside momentum and that a fresh uptrend is emerging.

Alternatively, a series of lower highs and lower lows over various time frames could well mean that a move higher in the index has come to an end and a move lower is now likely.

Swing traders try to identify these trend changes as they happen, though they will also use indicators to provide confirmation and avoid false breakouts. Swing traders make good use of stop losses to help manage their risk and often trail these stop losses behind their profitable positions; they may also add to or scale into positions as the strength of a trend develops.

Dax 30 trading systems  – any good?

There is much debate about trading systems and whether they genuinely work or not? Moreover, if they are worth the money you can spend on buying them? After all, if you had developed a system that regularly made money in the markets, wouldn’t you keep that edge or advantage to yourself rather than trying to sell it to others?

That said, having a rules-based approach to trading is a good idea though it’s arguably better to build your own set of rules, or system if you can.

Many such approaches revolve around trend-following or momentum-based systems that look to mimic or improve on the swing trading strategy outlined above. Such systems often use sophisticated indicators such as MACD (moving average convergence/divergence) and Stochastics to highlight and confirm trading opportunities. Interpreting what these indicators are telling us can seem quite daunting at first, but it gets easier with practice and familiarity.

One of the good things about the Dax is that it is made up of just thirty stocks and seven principal sectors which account for just under 80% of the Dax market cap, as we can see in the graphic below.

The Composition of the Dax

composition_of_dax

Source Deutsche Borse

What happens to these stocks and sectors directly affects the valuation of the index, of course. For trend followers keeping tabs on thirty stocks and associated sectors is much easier, than it is in a broader index such as the FTSE 100 or S&P 500. In theory, at least then a system for the Dax which has fewer variables should be easier to build and monitor.

How to invest in the Dax 30

We need to distinguish between trading and investing in answering this question. Investing in the Dax implies the long term ownership of assets related to the index. Whereas trading in the Dax, or indeed any other financial instrument or commodity, suggests short term speculation. Perhaps through spread bets or CFDs, that don’t confer ownership of the underlying assets, just an interest in the rise and fall of the index value.

To invest in the Dax, you’ll probably want to consider one of two routes. The first would be to buy an ETF or mutual fund that specifically tracks the Dax or large-cap German equities. As discussed above the ETF will try to replicate the performance of the Dax, both on the upside and downside.  Investing in this way should provide you with the index return. The mutual fund may try to do the same, but it could also try to outperform the benchmark, through active stock selection, though this is becoming harder to achieve as passive investments grow in popularity.

Alternatively, you could invest directly into a basket of German equities selecting from the constituents of the Dax, for example owning the five stocks highlighted in the graphic above, would expose you to approximately 42% of the Dax by market cap. However, it’s always best to seek professional advice to make sure that any investment is suitable and matches your particular requirements before you jump in.

Dax 30 trading hours

The Dax effectively trades around the clock through a combination of index futures and prices that are derived from them and the moves in other significant indices. Many of the larger Bookmakers and CFD providers quote 24 hours prices in the Dax. However, spreads may widen and volumes traded be lower, the further we move away from German market hours, simply because there are fewer active participants in the market at these times.

Dax 30 liquidity & volatility

The Dax is one of the most actively traded equity indices in the world, representing as it does both Germany and the broader export-led Eurozone economy. The front-month futures contract often trades in well in excess of 100,000 lots per day and has open interest in the tens of thousands of contracts. The liquidity in CFD and Spread betting contracts reflect this, of course, we need to bear in mind that when you trade or bet with your bookmaker of CFD broker/provider you are going to be trading on their price and their liquidity and not that of the exchange.

Being actively traded, with only 30 constituents, the Dax index certainly does move around and often does so more quickly than broader equity indices, which is why it is so popular with traders. However, the average level of volatility in the index since October 2017 is just 16.54 percent on a scale that runs between zero and one hundred. So while that’s a higher level of volatility than some peers, it’s still relatively low over the longer-term.

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