What is the DAX 40 Stock Index? | Indices Trading 2021

Germany’s benchmark stock index the DAX is growing from 30 stocks to 40 with new stricter rules to govern the companies that qualify. See what’s happening and how it affects your index day trading.

What’s happening with the DAX index?

On Monday September 20th, STOXX a unit of Deutsche Borse, the German holding company of stock exchanges will implement what Reuters referred to as the biggest overhaul of the DAX index since it was created 33 years ago.

The biggest changes include:

  • Growing from 30 companies to 40 companies
  • Strict new index listing criteria
  • New de-listing rules (to enable faster action in instances like the Wirecard scandal)

Reminder: What is the DAX index?

The DAX is the globally-known benchmark for the German stock market and contains the country’s biggest and best known blue-chip shares. The DAX index is Germany’s equivalent to the FTSE 100 in the UK or the S&P 500 and Dow Jones in the United States.

While many investors use it to track the overall performance of German stocks, it can also be directly day traded as an ETF on the Frankfurt Stock Exchange, as futures and options contracts and as a CFD (contract for difference).

Germany 30 CFD on the FlowBank Pro platform

FlowBank offers trading on the German 30 CFD (contract for difference) with one of the most completive spreads in the brokerage industry. The CFDs are currently named Germany 30 but will soon be updated to Germany 40, when the DAX changes take place.

The Dax index was created in 1988 and undergoes regular reshuffles whereby some new companies are added, and some are dropped but it has remained very close to its original form for over 30 years.

The DAX index family has expanded over the years. The new rules taking shape will affect all the DAX indices, including the MDAX, SDAX, TecDAX, DAX 50 ESG and DAX ex Financials 30.

DAX 40 Constituents (stocks)

The following table shows the companies and the sector they are in.

Original DAX 30

Adidas

Footwear

 

Allianz

Financial services

 

BASF

Basic Materials

 

Bayer

Healthcare

 

BMW

Automaker

 

Continental

Automotive

 

Covestro

Basic Materials

 

Daimler

Automaker

 

Delivery Hero

Online food ordering

 

Deutsche Bank

Financial services

 

Deutsche Borse

Financial services

 

Deutsche Post

Industrial

 

Deutsche Telekom

Communications

 

Deutsche Wohnen

Real Estate

 

E.ON

Utilities

 

Fresenius

Healthcare

 

Fresenius Medical Care

Healthcare

 

HeidelbergCement

Basic Materials

 

Henkel

Consumer goods

 

Infineon Technologies

Technology

 

Linde

Basic Materials

 

Merck

Healthcare

 

MTU Aero Engines

Industrial

 

Munich Re

Financial services

 

RWE

Utilities

 

SAP

Technology

 

Siemens

Industrial

 

Siemens Energy

Technology

 

Volkswagen Group

Automaker

 

Vonovia

Real Estate

New DAX 40:

Airbus

Plane-maker / defense

 

Porsche

Automaker

 

Puma

Shoes & sportswear

 

Siemens Healthineers

Health technology

 

Symrise

flavour and fragrences

 

Sartorius

Lab equiptment

 

Brenntag

Chemicals distributor

 

Hellofresh

Home meal kits

 

Qiagen

Genetic testing

 

Zalando

Fashion retailer

 

The new rules for the DAX index

The aim of the rule changes is to raise the bar on what’s required of companies in the DAX index. The major new rules for the DAX as reported by Qontigo are the following:

  1. Companies must be profitable for 2 years before inclusion
  2. Must publish quarterly financial statements and have audited accounts
  3. Companies must appoint an independent audit committee
  4. DAX composition to be reviewed every 6 months (instead of 12)
  5. Turnover requirement replaced by liquidity requirements (trading VOLUME)

Why is the DAX changing?

In a word, Wirecard. The accounting scandal involving the German company that had been escalated to the DAX index only 2 years prior to going insolvent was a major black eye. As of Wirecard’s insolvency in July 2020, a massive €2 billion is unaccounted for in what appears to be massive fraud at one of Germany’s most prized companies and a member of the DAX index. Ever since, German institutional investors have been calling for reform to shield them from improper corporate governance and to help recover the reputational damage.

The hope is that these changes will do two things:

  1. Raise the requirements to qualify for the DAX index
  2. Diversify the index so one stock will have less impact

Will the DAX 40 be better for day trading?

Despite the furore over Wirecard and the wild trading in German markets the weeks surrounding its collapse, the DAX index remains one of the most popular indices to trade at FlowBank.

As always, there are reasons for both hope and scepticism about the changes

Pros for DAX 40

A larger number of stocks will bring higher trading volumes, which in turn is good for liquidity. Day traders want as much liquidity as possible to make sure bid ask spreads are low and there are more traders to match your order against.

The Diversification that comes with the index becoming 25% larger means the DAX will be less influenced by moves in one or two stocks. This means news from Siemens will have less impact on the price of the DAX than it once did but means news affecting the other smaller companies like Continental AG will have a bigger effect, creating more trading opportunities.

Growth focused newly added stocks can change the dynamic of the index away from traditional heavy industry to more digital areas of the German economy.

Cons for the DAX 40

The big companies still matter the most in what is still a relatively concentrated index. With 40 companies the DAX is now more diversified than the Dow Jones Industrial Average but significantly less diversified than the S&P 500.

Germany’s economy is more concentrated than the United States - in both the number of companies and the industries those companies operate in. From that standpoint, there is only so much that the DAX index can change.

How to trade the DAX 40

To practise trading on the DAX index or over 10,000 other financial instruments including CFDs on forex, shares, indices, spot metals, futures, bonds, options, and ETFs -

bg_nwsletter
LiveWire

14 hours ago

Friday funny: AOC dress with buy the dip!

15 hours ago

The lost decade for European savers. 10 years since the ECB last raised rates

16 hours ago

The ultimate Disruptors (Cathie Wood) bubble