If you are looking for a volatile instrument that mirrors the European stock market closely, the DAX index or Germany 30 should be high on your list. This article covers all you need to know on dax 30 investing and how to trade the DAX index as a forex trader.
DAX is the German equivalent of the Dow Jones Index. It tracks the movement of the top 30 largest stocks on the Frankfurt Stock Exchange. Therefore, it is also called Germany 30 or Dax 30 index.
The index was established in 1988. Companies are added to the index when they become one of the top 25 largest companies in terms of market capitalization and are removed if they are no longer a part of the top 45 businesses.
Together with the FTSE and the S&P 500, the DAX is one of the most popular indices traded around the world.
Since its inception in 1988, the DAX has been largely stable. More than 50% of the companies in the Index today were there from the beginning. It is also not a surprise that the biggest brands in Europe are duly represented. The companies that make up the DAX Index today include:
Between 1991 and 2019, the DAX closed in positive territory in 21 out of 29 years. The best years in terms of return were 1993, 1997, 1999 and 2003, where the Index posted returns of 46.7%, 46.2%, 39.10%, and 37.1% respectively. Eight other years closed with returns higher than 20%.
Out of the eight negative years in that period, 2002 and 2008 were the worst as the index closed at -43.9% and -40.4% respectively.
The DAX 30 index is a very popular investment among traders for a variety of reasons:
⭐ Multiple markets in one window
As a new trader, it may be difficult to decide on individual companies to focus on when buying and selling stocks. Even when you can decide on a few stocks to follow, the process of monitoring the stock you have chosen can be challenging. Trading the DAX, on the other hand, saves you the stress of monitoring individual stocks or choosing a few options to trade. You can enter a position on all of the companies with a few clicks.
⭐ The volatility of the DAX Index
Due to the number of constituent companies, intense volatility is one of the main characteristics of the DAX Index. The price can routinely move more than 1,000 points over a single day. This gives traders a lot of opportunities to take positions in the market. If the idea of trading a fast-moving market appeals to you, the DAX index should be high on your list.
⭐ Longer Trading Hours
Most stock exchanges are open for around 25-35 hours per week, but you can trade the DAX up to 60-hours a week. Most providers offer DAX trading from 9:00 to 18:00 GMT, providing traders with a wide trading window.
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Due to the volatility of the DAX index, many investors are looking for opportunities to trade DAX via CFD ( contract for difference). CFDs are also like the stock market where investors make potential profits by speculating on the movement of the price of DAX but without actually owning those stocks.
There are several benefits of investing in the DAX 30 Index CFD.
● Risk money on the movement of the DAX
The DAX Index CFD gives you a chance to trade the movements of the index directly since you can’t buy the index on the floor of a stock exchange. You get a chart to monitor the movement of the index, and you can actively try to make money from it as it changes over the course of a trading day.
● Trade with a low margin
It would be very costly to buy and hold all 30 stocks that make up the index separately. Apart from the significant capital you need to come up with to invest in all the companies, the yearly management fees paid to the fund management company could also be expensive.
With DAX Index CFD, you only need to open an account with a regulated provider and start trading immediately.
● Trade using leverage
The leveraged nature of CFDs makes it easier for anyone to take part in the market with a small investment. For instance, Mitrade, an ASIC-regulated CFD broker, offers up to 1:200 leverage for trading the DAX. 🎁 Click to view mitrade ➜
This means that for every $1 in your account, you can control $200. With leverage, you can control sums that are far larger than what you’ve got in your account (up to 200 times in this case). This allows you to make bigger profits in profitable trades. However, leverage can also amplify your losses.
● Trade Multiple Markets
One benefit of trading DAX CFDs is the fact that you don’t have to create a special account for it. Most CFD providers also offer to trade on other markets, including currencies, commodities, metals and other indices. You can diversify and trade more of these instruments from the same account.
● Trade the Movement of the DAX in Both Directions
As we saw in the historic performance segment, the DAX can close a year in the negative. During a recession, as was the case in 2008, it could close up to 40% in the red. Traditional investors only make money when the stock market closes in green (high enough to also cover fees).
With trading DAX CFDs, however, you can make money in both directions by simply taking positions that reflect the direction of the market at the time. So you can sell in a bear market and buy in a bull market to make profits on the difference between your opening and closing price.
However, it is important to keep in mind that you can also incur losses if the market doesn’t go in your intended direction. In a bear market, for example, there will be hours, days or weeks of upward correction before the overall larger trend resumes.
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NDEXDB:DAX ( the dax index chart on Mitrade)
Mitrade is one of the top providers of CFD trading in Australia. It is one of the most trusted brands when it comes to trading the DAX（Germany 30）for traders in Australia and beyond. Some of the features that make Mitrade a top option for DAX CFD traders include:
· Speedy execution
· 1:200 leverage
· Tight spread from 24 pips
· Feature-packed trading platform
· ASIC regulation
· Robust charting technology with a plethora of technical analysis tools
1. Create your trading account on the sign-up page.
2. Submit all the required documentation via the trader dashboard.
3. Fund your trading account.
4. Open the chart of the DAX CFD (labeled GER 30 on the Mitrade platform).
5. Click buy or sell, depending on the direction recommended by your analysis.
6. Enter the trade parameters such as lot size, stop loss level and take profit level.
7. Execute the trade.
You can close the trade whenever you deem fit, either in profit or in a loss. You can also choose to let the trade run until one of your predetermined levels is hit.
DAX CFD and DAX Futures are similar because they both allow you to invest in the financial instrument without actually purchasing the assets. However, CFDs offer more flexibility than Futures.
With a DAX future contract, you are holding an obligation to purchase the index at a specified date in the future (monthly or quarterly).
DAX CFD allows you to trade the price movements of the DAX without any such limitations.
A DAX ETF is simply a basket of the 30 stocks that make up the DAX. It requires you to actually purchase and hold individual stocks.
❌ 1. Trading Without Monitoring Economic Announcements
Monitoring the economic announcements calendar for Europe-related releases is important if you want to reduce the chances of ending up on the wrong side of your DAX trade.
Such economic announcements can move the market significantly, so it is a good idea to take note of release times and either stay out of the market, reduce your market exposure or stay close to the trading platform to quickly close out positions if necessary.
You can monitor important economic announcements on platforms like MyFXBook, ForexFactory and FXStreet. Focus on all high-impact scheduled announcements for a trading day, with a focus on EUR-related data.
❌ 2. Using Excessive Leverage in Your DAX Trading
As mentioned earlier, the DAX index is a highly volatile instrument. Over leveraging your positions exposes you to a high chance of losing your trading account.
As at the time of writing, the average 10-day range of the DAX is a massive 400 pips. For context, the EURUSD has an average range of 83 pips over the same period. Therefore, you need to practice strict money management when trading DAX. This will ensure your trades have enough room to move without blowing your account if the market moves against you.
❌ 3. Holding on to Losing Positions for Too Long
The DAX index is one of the worst instruments to “hold and hope”. On highly volatile weeks, the instrument can move more than 1000 pips. How long are you prepared to wait for the market to reverse in your favor in these conditions?
It is likely that the market will return to your chosen direction sometime in future, but can your account balance withstand thousands of pips of movement against you while you wait?
❌ 4. Trading without a Stop Loss
It is best to have a good idea of where you intend to exit the market once you are wrong. This can be a fixed stop loss level entered on the platform or a mental level. A fixed stop loss is preferable because the trade will be closed once the preset price has been breached. A mental stop loss is better than not having any at all.
However, since DAX moves pretty quickly, you could be sitting in a loss bigger than you intended before you have the time to react.
There are many variables that come into play when investing the DAX 30 index. You need to know all of them and their potential impact on your DAX/Ger 30 index positions. Some of these include:
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● Daily Economic Data Releases
Economic data from Europe such as employment numbers, inflation reports, services and manufacturing PMI, etc. can have a big impact on the DAX’s movement for the day. Don’t forget to keep tabs on the European Central Bank meetings and ensuing statements.
● Political Changes
Elections and referendums that concern the Euro bloc can lead to increased volatility in the DAX. On the week of the Brexit referendum, for example, the DAX fell more than 1,200 pips once the UK voted to leave the EU.
● Global Trade Wars
If the major economies around the world are embroiled in a trade war, there will always be some worry about how tariffs or importation bans can affect the stocks of the companies that make up the DAX index.
● Global Economic Fears
The global market is interconnected, so a crisis in one or more countries can have an impact on the global economy, sending stock prices crashing. A good example of this is the Coronavirus-environment of 2020, which has caused the DAX to show signs of an impending negative year.
● Company-Related Movements
The 30 companies that make up the DAX 30 index are not weighted equally. Substantial movements in the stock price of the top-weighted companies can trigger big moves in the index.
The DAX index is a financial instrument that holds a lot of opportunities for CFD traders. However, its volatility is a double-edged sword.
If you choose to become a DAX index/ Germany 30 trader, choose a regulated provider like Mitrade that gives you the perfect environment to thrive, and then practice strict money management to increase your chances of success.
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