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DAX Expands To 40 Members – What Does It Mean For The Traders?

May 17, 2021
by Leon Marshall,

Article Recap

Hopes are greater diversification will mean more stability for the new DAX 40. But growing the index will also provide traders with new opportunities.

From September 2021, the DAX index will become broader, growing from its current 30 companies to 40 and introducing more stringent membership criteria and a profitability requirement.

The move is largely in response to the series of Wirecard accounting scandals in 2019.

Wirecard was part of the DAX when whistleblowers reported serious accountancy irregularities and made broader allegations of fraud and forgery. An exposé in The Financial Times led to the collapse of the business.

Wirecard then filed for insolvency in June 2020 after forensic accounting investigations revealed that almost €2 billion was unaccounted for. The scandal hit confidence in the DAX, and Germany’s wider financial reputation, hard. By growing the DAX index, operator Deutsche Börse hopes greater diversification will mean more stability.

What is the DAX Index?

The facade of the Deutsche Borse in Frankfurt, Germany

DAX celebrated 30 years of trading in 2018

The DAX, which is sometimes referred to as the GER 30 or DAX 30, is Germany’s blue chip stock index of the country’s major companies.

The DAX is traded on the Frankfurt Stock Exchange with a total market cap of around €1,181,238.25 billion.

The index has been active since 1988. It represents around 80% of the market capitalisation of listed stock corporations in Germany.

Along with the Dow Jones Index in New York, and the FTSE 100 in London, the DAX is one of the world’s most trusted, and heavily traded, Indices. It is widely seen as a good indicator of the health of the German economy.

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Which companies make up the DAX 40?

The GER30 is currently made up of some of Germany’s biggest business names. Globally recognised companies, including Adidas, Allianz, BMW, Merck, SAP and Volkswagen, are all long-time members of the DAX.

There are also some relatively less well known (at least outside of Germany) businesses, like Beiersdorf, Delivery Hero, Fresenius, MTU Aero Engines and RWE.

But which companies will be joining the DAX in September and what does it mean for traders?

Airbus' German Headquarters in Hamburg

The German Airbus Headquarters in Hamburg. The aircraft manufacturer is among the companies being touted to join the new 40-piece DAX Index.

Entry into the new DAX 40 will be based on market cap and the new profitability criteria.

According to a recent Bloomberg report, the most likely new entrants to the DAX 40 could be: Airbus, Symrise AG, Zalando, Sartorius, Qiagen NV, Siemens Energy AG, LEG Immobilien AG, Brenntag AG, Siemens Healthineers and Hannover Rueck SE.

Being added to Germany’s biggest Index will be a significant boost for these companies and will provide traders with new opportunities.

With a broader array of sectors represented, trading strategies to the DAX will likely evolve, while the impact of the biggest companies in the index will likely be less pronounced, meaning more stability.

How can I trade on the new DAX 40?

Understanding how a financial market operates is critical to successful trading. Like any other global Index, a broad array of economic and political factors influence the movements of the DAX.

When creating your Indices trading plan, make sure you’re aware of potential events, data releases, big political speeches or elections, and any major central bank announcements that could influence sentiment.

Some of the factors which could impact volatility in the DAX include:

  • Shifts in the performance of individual companies or major market moves in wider German sectors
  • Changes to economic indicators, such as inflation, job reports, interest rates or central bank decisions
  • Political events, speeches, referendums, elections or changes in leadership
  • Scandals or improper conduct across individual companies within the Index
  • Major changes in trading relationships or agreements, for example Brexit

While this list is not exhaustive, it gives a good idea of some of the factors to be mindful about when trading the DAX or other major Indices.

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As a trader, you can either choose to trade over shorter time frames in a more aggressive approach or take a longer position on the DAX and look for more consistent returns, without being worried about shorter intraday volatility.

It all comes down to your appetite for risk and how much risk exposure you’re happy with. Remember that when trading, your investments can go up as well as down. Therefore, it’s important to have a clear trading plan and an understanding of the factors behind market movement.

Trading on the DAX with Eightcap

Trading on the DAX 40 requires a deep understanding of both the broader Index’s performance as well as those of its constituent companies. Always keep a close eye on your open positions. Stay up to date with market moves and related economic data releases. You can also subscribe for the latest market news or visit our Trading Education Hub to learn more about trading Indices.

Trading on margin is high risk.

All times are AEDT.