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DAX 30 to DAX 40 index: What does it mean for day trading?

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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.

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What’s happening with the DAX index?

On Monday September 20th, STOXX a unit of Deutsche Borse, the German holding company of stock exchanges implemented 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.

Germany 30 CFD on the LCG Trader platform (3pm GMT 10/9/21)

Past Performance is not an indicator of future performance

LCG 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 (DAX® (TR) EUR – Qontigo (dax-indices.com).

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 30AdidasFootwear
AllianzFinancial services
BASFBasic Materials
BayerHealthcare
BMWAutomaker
Continental Automotive
CovestroBasic Materials
DaimlerAutomaker
Delivery HeroOnline food ordering
Deutsche BankFinancial services
Deutsche BorseFinancial services
Deutsche PostIndustrial
Deutsche TelekomCommunications
Deutsche WohnenReal Estate
E.ONUtilities
FreseniusHealthcare
Fresenius Medical CareHealthcare
Heidelberg CementBasic Materials
HenkelConsumer goods
Infineon TechnologiesTechnology
LindeBasic Materials
MerckHealthcare
MTU Aero EnginesIndustrial
Munich ReFinancial services
RWEUtilities
SAPTechnology
SiemensIndustrial
Siemens EnergyTechnology
Volkswagen GroupAutomaker
VonoviaReal Estate
New DAX 40: AirbusPlane-maker / defence
PorscheAutomaker
PumaShoes & sportswear
Siemens HealthineersHealth technology
Symriseflavour and fragrances
SartoriusLab equipment
BrenntagChemicals distributor
Hello FreshHome meal kits
QiagenGenetic testing
ZalandoFashion retailer
Source: Wikipedia/ Reuters NOTE: The constituents of the index are subject to change

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 DAXas 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 priorto 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. 

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 LCG.

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

Pros for DAX 40

A larger number of stockswill 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 Diversificationthat 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, potentially creating more trading opportunities. 

Growth focusednewly 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 mostin 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 concentratedthan 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.

Volatilitycould decrease. Having more constituents in this index will decrease volatility, which could  either encourage or discourage day traders who normally would have liked this index due to its aggressive swings

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 – 

Register for a free LCG demo trading account

Spread betting and CFD trading carry a high level of risk to your capital and can result in loss of your deposits. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 68% of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.

The information provided within this communication has been prepared by London Capital Group Limited (LCG) and is intended for informative purposes only. It is not intended for investment, or commercial advice or an offer or solicitation for the purchase or sale of any financial instrument. Any opinions, news, research, analysis, prices, other information or links to third-party contained within this communication is provided as general market commentary and does not constitute investment advice and is not intended for any form of commercial use. LCG shall not accept liability for any loss, damager including, but without limitation, to any loss or profit which may arise directly or indirectly from use of or reliance on such information.

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