The DE40 Index, also known as the DAX 40, is a German stock index that reflects the performance of the 40 largest German companies traded on the Frankfurt Stock Exchange. The DAX Index is widely considered a strong indicator of the health of the German economy and the overall health of the European stock market.
The DAX Index is calculated using a free-float market capitalization-weighted methodology. It means that the companies included in the index are weighted according to the total free-float market value of their shares, with larger companies having a greater impact on the index.
Like any other stock index, the DAX's price is influenced by various factors. Here are some key factors that can impact the price of the DAX index:
1. Economic Indicators
- GDP: Economic growth or contraction in Germany, as well as in major global economies, can influence investor sentiment and DAX prices.
- Employment Data: Unemployment rates and job creation figures can indicate the health of the economy and impact market confidence.
- Consumer Spending: Levels of consumer spending reflect the overall economic health. High spending can indicate confidence, positively affecting the DAX.
- Manufacturing and Services Indices: These indices provide insights into the health of different sectors of the economy.
2. Interest Rates and Monetary Policy
Decisions by the European Central Bank (ECB) regarding interest rates and monetary policy can significantly impact the DAX. Lowering interest rates can encourage borrowing and investment, positively affecting stock prices.
3. Corporate Earnings
The financial performance of companies listed on the DAX directly influences the index. Positive earnings reports often lead to increases in stock prices.
4. Global Events
- Trade Relations: Germany being a major export-driven economy, changes in global trade policies and international trade relations can impact the DAX.
- Geopolitical Events: Political tensions, conflicts, and other geopolitical events can create uncertainty, affecting investor confidence.
5. Currency Fluctuations
- Euro Dynamics: The strength or weakness of the Euro against other currencies can influence the performance of German multinational companies and, consequently, the DAX index.
6. Market Sentiment
- Investor Sentiment: Positive or negative investor sentiment can drive buying or selling activity, impacting DAX prices.
- Market Speculation: Speculative trading and short-term market movements can influence the index daily.
7. Commodity Prices
Germany’s economy, like many others, is sensitive to changes in energy prices. Fluctuations in oil and gas prices can affect the DAX, especially for companies in the energy sector.
8. Regulatory Changes and Government Policies
- Taxation and Regulation: Changes in tax policies and regulations can impact corporate profits and, consequently, stock prices.
- Government Stability: Political stability and policy continuity are important for investor confidence.
9. Black Swan Events
- Unexpected Events: Natural disasters, terrorist attacks, pandemics, and other unforeseen events can cause significant market volatility.
10. Technological Factors
- High-Frequency Trading: Algorithms and high-frequency trading can cause rapid and large-scale market movements.
Here are some of the companies included in the DE40 Index (DAX 40):
- Adidas AG
- Allianz SE
- BASF SE
- Bayer AG
- BMW AG
- Continental AG
- Daimler AG
- Deutsche Bank AG
- Deutsche Lufthansa AG
- Deutsche Post AG
- Deutsche Telekom AG
- E.ON SE
- Fresenius Medical Care AG & Co. KGaA
- Fresenius SE & Co. KGaA
- HeidelbergCement AG
- Henkel AG & Co. KGaA
- Infineon Technologies AG
- Linde plc
- Merck KGaA
- Munich Reinsurance Company
- RWE AG
- SAP SE
- Siemens AG
- Thyssenkrupp AG
- Volkswagen AG
Please note that the composition of the DE40 Index may change over time depending on changes in market capitalization and other factors.
So why is this index considered one of the best for trading? The main answer lies in the volatility and technicality of the instrument. The DAX is one of the most volatile instruments in the world. One of the main reasons for the volatility of the DAX is that liquidity on this instrument is much lower than on the American indices like the S&P 500 (US500), Dow Jones (US30), or Nasdaq (US100). Pay attention to the liquidity inside the candles (the number of contracts at a particular price level).
ES (S&P 500, US500)
The lower the liquidity, the higher the volatility, and vice versa. And the higher the volatility, the more frequent the opportunities to make money. But you should always keep in mind the risks because volatility is both an opportunity for quick gains and quick losses.